Investment advisers charged in Ponzi-type scheme

CEDAR RAPIDS – Two investment advisers accused of a Ponzi-type scheme, involving more than $200,000 from some Linn County residents and others in Iowa and North Carolina, were charged Thursday with nine counts of theft, securities fraud and money laundering.

Noah Aulwes, 54, owner of Covenant Advisors, 136 36th St. SE, Suite A2, who was fined last year by state regulators for making false claims regarding a hedge fund, is charged with on count of ongoing criminal conduct, three counts of first-degree theft, three counts of securities fraud,  and one count each of money laundering and first-degree fraudulent practices, according to a criminal complaint filed Thursday.

James Bernard Kayser, 48, is charged with ongoing criminal conduct and one count of first-degree theft, according to the charges.

An arraignment is set March 24 in Linn County District Court.

The Iowa Attorney General's Office is prosecuting this case because it usually has jurisdiction over cases involving securities fraud, spokesman Geoff Greewood said. The state attorneys first became aware of an alleged victim in Cerro Gordo County and then discovered more in Linn County.

Greenwood said he couldn't give additional details about Aulwes and Kayser, other than what is contained in the trial information.

Aulwes is accused of misappropriating about $200,000 of investors' funds for his personal benefit and to make “Ponzi-type” payments to other investors and misappropriating about $90,000 of investors' funds invested in the Philippines, according to a criminal complaint.

Aulwes and Kayser are accused of misappropriating $20,000 received from a client, Kathleen Bridgeman, of Mt. Auburn, for the purchase of an annuity in April 2009, according to the complaint..

Aulwes is also accused of committing securities fraud by:

-Using sale or purchases of promissory note to Phillip Noblett, of Aberdeen, NC,  between April 2009 to May 2010.

-Offer or sale of a security to a Phyllis Combs, of Bettendorf, in July 2009 and continuing through May 2010.

-Offer or sale of a security to Wallace Maring, of Marion, in July 2009 and continuing through May 2010.

Aulwes was issued a cease-and-desist order and a $10,000 fine by the Iowa Insurance Division last year. The order required Aulwes to cease making untrue statements in the sale of securities, cease selling securities without grounds to believe they are suitable for clients, and to cease charging excessive management fees to clients.

The report stated Aulwes sold shares of a private equity fund called the Covenant Investment Fund. Covenant had $4.6 million in assets as of March 3, 2009 but by Sept. 30, 2009, it had only $1.55 million under management.

Aulwes told The Gazette last year he had no intention of misdirecting his investors or losing them money.

Another Cedar Rapids company, Prosapia Financial LLC and Prosapia Capital, who took over the Covenant hedge fund last year, to help clients get their money back failed and was issued a cease-and-desist order by the insurance commission. The commission said the company was acting as an unregistered investment advisor last October and fined it $10,000.

The order was contested but an administrative law judge ruled the company didn't meet the definition of an investment adviser. The company was only fined $1,000, not $10,000 as sought by the insurance division.