Lack of written OKs may have made fraud scheme hard to detect

Lack of written OKs may have made fraud scheme hard to detect

CHAMPAIGN — How could Tim Roth's fraud scheme last as long as it did without detection?

One factor could be that some clients didn't require written authorization for him to transfer funds from their accounts.

As an investment manager, Roth handled mutual fund option plans for companies offering that benefit to executive employees.

According to Roth's plea agreement with prosecutors, employees who exercised their mutual fund options got their distributions from a Keyop Exercises account Roth had at TD Ameritrade.

At the outset, when an employee asked an employer to exercise an option to buy mutual funds, the employer would forward a request and a written authorization to Roth's company, Keysoft Consulting.

Once Roth and Keysoft Consulting got that authorization, Roth would transfer mutual fund shares from the client's accounts to Keyop's account at TD Ameritrade.

Roth would then liquidate the shares and distribute the funds to the employee and the appropriate tax withholdings to the employer.

But over time, Roth's clients became more trusting.

Some clients gave him standing authorizations to transfer funds for distribution without getting written authorization. He simply needed verbal authorization to move funds, leaving no paper trail.

Along the way, some concerns were raised about how Roth conducted business.

In 2003, TD Ameritrade raised concerns with Comprehensive Capital Management — which employed Roth as an investment adviser — that Roth had transferred client funds into accounts he owned.

To help satisfy the concerns of CCM's compliance officer, Roth transferred his ownership of Keyop Exercises in August of that year to a friend and partner in another business.

That arrangement was made with the understanding that the friend would be merely a nominee-owner acting at Roth's direction and control, with Roth continuing to make the decisions.

According to the plea agreement, Roth bought a stamp with the friend's signature so Roth could operate the business without involving the friend.

In 2007, the friend — who was identified in the plea agreement only as "RM" — asked to be removed as owner of Keyop.

Roth subsequently named another person — identified only as "GR" — to be president and owner of Keyop.

Even so, the plea agreement said, Roth maintained full control over Keyop and its accounts.

This story appeared in print on Oct. 30.