Peter Eichler Jr., CEO and co-founder of Aletheia Research and Management Inc., is fighting for his firm's life, but faces possibly insurmountable odds.
Disclosures last week that the staff of the Securities and Exchange Commission is recommending fraud charges be brought against Aletheia's management came on the heels of the firm's filing earlier this month for Chapter 11 bankruptcy protection.
“You can stick a fork in them, they're done,” said Michael Rosen, founder and chief investment officer at investment consultant Angeles Investment Advisors LLC in Santa Monica, Calif.
Also last week, U.S. Bankruptcy Court Judge Barry Russell in Los Angeles questioned whether the company will survive if reorganized.
The latest bad news for the Santa Monica, Calif.-based money manager came on Nov. 21 in bankruptcy court, where SEC attorney Gary Leung said commission staff had informed Aletheia officials in a letter that they intend to seek approval from SEC commissioners to bring fraud charges against the firm's management.
Sources say the investigation involves accusations of improper trading practices by Mr. Eichler, who is also Aletheia's chairman and chief investment officer.
Mr. Eichler did not return phone calls.
Mr. Leung said Aletheia management was sent a Wells notice Nov. 14, saying the agency's enforcement staff wants to bring civil charges for violations of the anti-fraud, disclosure and internal controls requirements of the Investment Advisors Act of 1940 and the Securities Exchange Act of 1934.
Mr. Leung said the charges involve current management and that the SEC staff wants disgorgement of ill-gotten gains from officials and payment of civil penalties.
Aletheia and its two top officials at the time paid a combined $400,000 fine to the SEC in 2011 to settle charges that they did not tell clients the SEC had found deficiencies in the company's record keeping.
The firm was a success story of the late 1990s. Founded by Mr. Eichler, a third-generation Los Angeles money manager, and his business partner Roger Peikin, the firm grew quickly as its growth equity strategy outperformed the Standard & Poor's 500 stock index.
Under Mr. Eichler, Aletheia grew to almost $10 billion in assets in early 2008. Aletheia's fall in the past three years has been fast and furious, fueled by legal disputes, subpar investment performance and the SEC investigations.
Mr. Eichler blames the Chapter 11 filing on the cost of defending ongoing lawsuits between Aletheia and Mr. Peikin, and another lawsuit between Aletheia and Proctor Investment Managers LLC, which purchased a 10% stake in Aletheia in 2006, court papers show.
Mr. Eichler ousted Mr. Peikin as general counsel, chief financial officer and executive vice president in 2011.
Court papers show Aletheia has only around $300,000 in operating capital. Its debtors include the California Franchise Tax Board, which is seeking $2.1 million in back taxes. The back taxes are a major problem; the tax board suspended Aletheia's corporate registration to operate as a business in California on Oct.1.
Getting its corporate registration reinstated is crucial for Aletheia because the firm has no legal standing to defend the lawsuits by Mr. Peikin and Proctor or operate as a business. Bankruptcy protection would also help Aletheia because the Peikin and Proctor suits would be stayed.