Mark MacArthur, a son of Pastor John MacArthur of Grace Community Church in California, has been charged by the Securities and Exchange Commission along with a wealth management company he founded with defrauding their advisory clients.
The federal agency announced earlier this month that MacArthur, 52, his Criterion Management Insurance Services, Inc., as well as then co-owner Robert Gravette, allegedly breached their fiduciary duty and defrauded their advisory clients by failing to disclose significant financial conflicts of interest when recommending investments in private real estate investment funds.
The SEC's complaint, filed on Feb. 12, alleges that MacArthur and the other defendants listed recommended that their advisory clients invest more than $16 million in four private real estate investment funds without disclosing that the fund managers had paid them more than $1 million from 2014 to 2017.
The $1 million payment was on top of the fees clients were already charged directly. The actions of MacArthur and his company also resulted in reduced returns for some of their clients.
“Because this additional side compensation was recurring and depended on Criterion’s clients remaining invested in the subject funds, Criterion, Gravette, and MacArthur not only had a financial incentive to recommend that their clients invest in the first instance, they were also incentivized to keep their clients in the funds going forward, rather than allocating their capital elsewhere. For two of the private placement funds, the undisclosed compensation that defendants received reduced the investment returns that defendants’ advisory clients would have otherwise received,” the complaint says.
“Defendants kept their clients in the dark as to all these material facts and, in doing so, they violated their fiduciary duty and defrauded their advisory clients. What’s more, these undisclosed compensation arrangements rendered Criterion’s Form ADV filings with the Commission materially misleading, and no policies and procedures had been adopted and/or implemented at Criterion to prevent these compliance failures,” it adds.
MacArthur, who resides in Newhall, California, is currently the president, managing member and chief compliance officer of a state-registered investment adviser, M2 Financial LLC, which he formed after leaving Criterion in June 2016.
From 2004 to mid- 2016, MacArthur was Criterion’s co-owner and chief investment officer. In mid-2016, MacArthur became an independent contractor for, but remained associated with, Criterion.
MacArthur is one of four sons of Pastor MacArthur who currently also serves as Chancellor Emeritus of The Master’s University. Pastor MacArthur was president of TMU from 1985 until he transitioned to his present role at the end of June 2019.
The complaint says Gravette and MacArthur were long-time social acquaintances of one of the unidentified fund managers in the case dating back to the 1980s, when they attended the same university. MacArthur attended The Master’s University.