Donald DeWaay, whose Clive financial services campus collapsed under the weight of debt, a range of investigations into his business practices and a class-action lawsuit, has been ordered to pay more than $500,000 to pension plan participants after charging them excessive fees.
The U.S. Department of Labor said Monday that DeWaay has paid $341,487 to 68 pension plans and has agreed to pay an additional $212,727 over the next five years to other plans because of violations of the Employee Retirement Income Security Act.
According to a release, an investigation found that DeWaay, entities he owns and former employees violated federal law when they recommended certain investments to clients participating in ERISA-covered employee benefit plans between May 2007 and November 2011. Investigators also found that DeWaay's companies and advisers charged higher fees than those agreed to by their clients.
Recommendations made to clients also resulted in DeWaay, his companies and former employees receiving commissions from third parties.
According to an audit of DeWaay's personal and business finances that was conducted as part of a class-action lawsuit in Decatur County, DFN Partners LLC, the holding company that owned his DeWaay Financial Network broker-dealer, paid commissions of $6.8 million to its brokers in 2007 and $13.2 million in 2013. Those commissions would have been for a range of investments in privately held companies that were promoted by DeWaay and his brokers, not just ERISA plans.
Excessive broker-dealer fees and commissions have come under fire from a range of regulatory bodies, including the U.S. Securities and Exchange Commission and the private Financial Industry Regulatory Authority Inc., which serves as an oversight body for investment advisers.
It is estimated that DeWaay and affiliated brokers sold $46.3 million in private investments, often in ventures that later declared bankruptcy, to more than 590 clients.
DeWaay built an elaborate financial services campus in Clive, then saw it returned to lenders in the wake of the collapse of the real estate market and controversies that stemmed from the promotion of private placements in real estate investment trusts and oil-and-gas exploration firms. Read a related story here.
DeWaay shuttered the brokerage in late 2012 and also gave up his broker-dealer registration.
In June 2013, a Decatur County judge approved a $3 million settlement of the lawsuits that were consolidated for settlement purposes. The class-action lawsuits claimed that DeWaay and his brokers did not perform adequate due diligence before promoting the investments. Under the terms of the settlement, DeWaay would pay $925,000 and insurance companies would pick up the balance. The settlement has been appealed. The settlement stopped additional individual claims against DeWaay and his companies.
Prior to the filing of those lawsuits, DeWaay settled other claims before FINRA that arose from sales of investments in an Idaho-based real estate investment trust. DeWaay and his companies also were sued in Texas by investors who lost money in oil and gas leases offered by a now bankrupt firm.
Under the settlement with the Department of Labor, DeWaay and four investment advisers he employed -- Joshua Cross, Paul Espey, Andrew Kleis and Brenton Collins -- have agreed to disclose to ERISA clients whether they will act as fiduciaries to those plans. The investment advisers and companies will also provide their ERISA plan clients a description of all compensation and fees received, in any form, from any source, involving any investment or transaction related to them.
They have also agreed that either they will not collect commissions from third parties or, if they do, will refund 100 percent to their ERISA plans clients. DeWaay also agreed to be removed as trustee of the DeWaay and Associates Inc. 401(k) Profit Sharing Plan, and to no longer serve or act as a fiduciary or service provider to the plan.
DeWaay also hit another financial bump last year when the Internal Revenue Service filed a lien for nonpayment of $113,017 in income taxes that were due in 2010. The lien was released in December 2013 after the taxes were paid.