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Enforcement News: Misappropriation of Client Funds and Stock Manipulation

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  • Posted on: Dec 6 2023

By: Jeffrey M. Haber

It should come as no surprise that one of the goals of an investment fraud is the theft of customer funds for the scammer’s personal benefit. In legal parlance, this aspect of a fraudulent investment scheme is called misappropriation. 

Misappropriation occurs when a person uses another person’s money without authorization. Misappropriation of funds mirrors the crime of embezzlement, which is a crime committed by a person having a relationship of trust or fiduciary duty to another person and who steals that person’s money or property for his/her own personal gain. 

On November 29, 2023, the SEC announced (here) that it brought fraud charges against Phoenix-based real estate investment company ArciTerra Companies LLC and its CEO, Jonathan M. Larmore, for engaging in a multi-year scheme to misappropriate millions of dollars of investor funds from investment vehicles that ArciTerra managed. The SEC also charged several entities controlled by Larmore for their roles in the scheme.

The SEC alleged that, since at least January 2017, Larmore and the charged entities misappropriated more than $35 million from private real estate funds and other investment vehicles that ArciTerra managed. Larmore allegedly used a substantial portion of the misappropriated funds to pay for his family members’ personal expenses and to fund a lavish lifestyle of private jets, yachts, and expensive residences.

The SEC also alleged that Larmore and Cole Capital Funds LLC, an entity Larmore formed and controlled, issued a press release in November 2023 falsely stating that Cole Capital intended to purchase 51 percent of all minority ownership shares in WeWork, Inc., an unrelated public company, at $9 per share, more than nine times WeWork’s then-current trading price. According to the SEC, WeWork’s stock rose close to 150 percent in after-hours trading shortly after the press release was issued. The SEC alleged that Larmore purchased more than 72,000 call options in WeWork at a price far below the stock price in the days before the press release was published, hoping to execute the trades at profit after manipulating the stock price. However, due to a delay in the issuance of the press release, most of the options expired before Larmore could exercise them.

The SEC filed its complaint on November 28, 2023. A copy of the complaint, which was filed in the United States District Court for the District of Arizona, can be found here.1

Commenting on the action, Andrew Dean, Co-Chief of the Asset Management Unit stated, “[a]s the complaint alleges, instead of protecting client assets, Larmore and his related entities took advantage of investor trust for his and his family’s personal gain. Protecting investors from fraud by their financial advisers is a priority for the SEC, as is protecting the market from false press releases aimed at manipulating the stock of a publicly traded company for personal gain and leaving unknowing investors to lose out.”

The SEC’s complaint charged Larmore, ArciTerra, and several related entities controlled by Larmore with violating the antifraud provisions of the federal securities laws. The complaint seeks permanent injunctive relief, the appointment of a receiver, disgorgement and prejudgment interest, and a civil penalty, and other relief.


  1. The case is styled: SEC v. Lamore, et al., Case 2:23-cv-02470-DWL (D. Az. Nov. 28, 2023). It is important to remember that the complaint is merely an allegation of wrongdoing. Nothing has been proven by the SEC and no findings have been made before a trier of fact (e.g., a judge or jury).

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

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