A Pennsylvania-based investment advisor raised more than $200 million in illicit loan proceeds by pledging millions in advisory assets as collateral without clients’ permission, according to the Securities and Exchange Commission.
The SEC filed the complaint against Joshua W. Coleman, a former advisor and founder of Vesta Advisors in North Wales, Pa., which terminated its SEC registration in 2020.
Starting in 2011, Coleman offered services to high-net-worth individuals and family offices and formed Vesta in April 2018 to provide advisory services to some insurance and family office clients, as well as to manage his own investments, according to the commission.
In October 2018, Coleman asked one of his clients to co-invest in purchasing the entire limited partnership interest of an oil-and-gas venture, totaling about $22 million. The client turned down the opportunity, leaving Coleman on the hook to make the purchase but unable to afford it.
In response, he approached a bank for a two-month unsecured $20 million bridge loan, telling them the client would repay the loan on Vesta’s behalf (though the client had no such plans), according to the SEC.
When the client didn’t repay in early 2019, the bank pressed him on it, and Coleman continued to assert that they’d do so. About this time, the client transferred operating units in a publicly traded REIT into a Vesta brokerage account in order to liquidate them, but Coleman used some of these units as collateral for another $25 million line of credit from the bank.
But in April, the client directed the bank to transfer proceeds from the sale of these units into a separate account at the bank under the client’s direct control, but the bank couldn’t do so because the funds were collateralizing Coleman’s line of credit.
To hide the scheme, Coleman told the client he’d invested the funds in “illiquid securities and needed time to unwind the positions.” He then applied for a new $100 million line of credit with the bank, in order to release the client’s funds.
To secure it, Coleman pledged $100 million in bonds and assets invested through Vesta for an unnamed married couple (known in the complaint as “Client 2”). According to the SEC, Coleman didn’t tell the couple about his actions, but the line of credit was approved, allowing him to repay the $25 million balance on the line of credit that held the first client’s funds. He also used about $2.75 million from the new line of credit for expenses from personal investments.
But days later, the bank questioned whether he could pledge these assets and wanted proof of the clients’ approval; he then allegedly doctored client emails making it look like the clients had approved it.
But the bank didn’t buy it, refinancing the $100 million line of credit and making Coleman responsible for repaying the funds he’d drawn from it. Coleman emailed Client 2 in June, disclosing that he’d used some of their assets as collateral.
“Coleman misrepresented in the email that only a small amount had been drawn from the Vesta Capital line, rather than approximately $28.5 million. Coleman also failed to disclose that he had drawn the funds from the line of credit for his personal use,” the complaint read. “In response, Client 2 asked Coleman for confirmation that he would never again use their account as collateral, which Coleman provided.”
But only days later, Coleman contacted a second bank, claiming he was authorized to use the couple’s assets as collateral for another line of credit. The bank agreed to $25 million, though they also required the clients’ written consent. Coleman gave them an email address he controlled and subsequently forged the couple’s electronic signature.
After the bank funded the line of credit, he immediately took out $22 million, using it to repay the loan to the first bank and for some other expenses. According to the commission, he did all of this without the married couple’s knowledge. At a later point, the couple also invested $20 million in a number of feeder funds run by Vesta, and Coleman also tried to use that money to shore up the $25 million line of credit, forging their signature again.
Coleman could not be immediately reached for comment.
Soon, Coleman was in a financial tailspin; in May 2020, the bank declared Coleman to be in default on the line of credit, seizing the couple’s $20 million from the feeder fund as repayment. He told the couple that he’d used and lost their money, pledging to repay them by the end of June.
Coleman then approached a private lender for a $50 million loan, claiming he would be using it to finance a “corporate acquisition,” while he really would use it to repay his clients. In July 2021, he admitted to the unnamed private lender that he’d misused the proceeds, but lied about the reason, saying he’d used the funds to close on the oil-and-gas venture, and fabricated documents supporting his assertion.
The private lender agreed to give him a chance to repay. In October, he got a second private lender to finance a $50 million delayed-draw loan, again claiming he’d use the money to finance corporate acquisitions, but he used the funds to pay back the first lender, as well as other expenses.
But eventually, the lenders lost patience, and served Coleman with notices of default in June and July 2022. According to the commission, the lenders collectively lost $50 million, while Coleman had pledged more than $160 million in his clients’ assets as collateral during the course of the scheme.
Coleman didn’t admit nor deny the accusations, but agreed to a permanent injunction and an “officer-and-director” bar (prohibiting him from serving in those roles for any public company with a class of securities). He also agreed that disgorgements and civil penalties would be determined by the court.