Kenneth Wayne Graves, a former investment adviser in Corpus Christi whose registration had been revoked by the Securities Commissioner, was sentenced to concurrent seven-year state prison terms Sept. 3 and ordered to pay $517,158 in restitution.
Graves entered his pleas in Corpus Christi State District Court. He pleaded guilty to misapplication of fiduciary property and was sentenced to a seven-year prison term and ordered to pay restitution of $128,918. He also pleaded no contest to securities fraud and was sentenced to a seven-year prison term and restitution of $388,240. The sentences will run concurrently.
Graves was indicted in June on charges stemming from the sale of a security whose return would be based on the income of his firm, Warren Financial Services LLC (WFS). Graves sold the security, in the form of an investment contract, to some of his clients. Investors were supposed to receive between 2.5% and 5% of WFS’ monthly gross income for periods of between three and seven years.
Graves, however, failed to disclose that a large portion of client accounts at WFS had been sold to another firm, reducing the amount of accounts from which Graves’ firm could collect management fees – fees that were supposed to generate returns for investors.
Graves also failed to disclose that funds paid by prior investors had not been used for their intended purpose.
The case was prosecuted by Texas State Securities Board enforcement attorneys, who were appointed special prosecutors by the Nueces County District Attorney’s office.
The 2014 Default Order revoking the registrations of Graves and WFS, a separate administrative action, found that in connection with the sale of the investment contracts, Graves made unauthorized withdrawals of “advance management fees” from clients’ custodial accounts, underpaid investors – and for many months, didn’t make any payments to some investors – and charged fees that were much higher than the 2% annual management fee listed in its investment management agreement.