The investigation into Edward E. Matthes’ activities was initiated when a client sounded off FINRA (Financial Industry Regulatory Authority) in March 2019 upon receipt of an account statement that looked fake to him. Apart from the Securities Exchange Commission (SEC), the Oconomowoc Police Department, the FBI and the Labor Department’s Employee Benefits Security Administration also got involved with the investigation in the case.
The broad modus operandi was that he created a fictitious investment that provided a guaranteed minimum return of 4% annually. To back up his claims about the fictitious investment he created, he also concocted fictitious account statements for the victims of his fraud. He made unauthorized withdrawals and sales in the variable annuity accounts that he had access to.
“I cannot explain in words how panicked, scared, frustrated, and angry we were to find out how an upstanding businessman, religious, family man in a small community associated with a large organization [like] Mutual of Omaha could possibly carry out this crime for years.”
“I know that I am not the same person I once was, my trusting mechanism is broken, and I don’t think I have enough time in my life to heal from it.”
“I don’t know if the word ‘devastating’ describes the frantic overwhelming terror of waking up one day and finding out that all you have worked for, your retirement income is gone, and your own flesh and blood, your son, swindled you out of it.”
These are statements made by three of the victims of a financial fraud perpetrated by Edward E. Matthes, now ex-advisor of Mutual of Omaha Investor Services. The last one being that of his father.
The total sum he diverted amounted to $2.6 million and belonged to 27 clients, mostly elderly, among them his own father, and a cognitively disabled client.
Where did the money go?
Like most fraudsters, the money bilked off went into supporting his lifestyle and included luxury items, cars as well as home bills.
He “held himself out publicly as an advocate for the very values he privately ignored,” a government memo says, possibly commenting on the Christian values he espoused while recruiting clients from the YMCA, his church, as well as other business organizations while cooking up schemes to rob them.
As per court documents, 23 of the victims have been compensated so far for their losses. They have not had to wait long for receiving compensation thanks to the insurance coverage as well as payments made by the wealth manager. A sum of $165,000 is still owed to four other victims in restitution. Matthes also owes $1.6 million to Mutual of Omaha and $600,000 to AIG, the insurer.
Matthes, who was a representative of Mutual of Omaha between April 2012 and March 2019, appears to have resorted to fraudulent practices when he realized that gaining clients was more of a task than he had expected it to be. This, however, may not be fully correct as his BrokerCheck record also reveals a payment of $75,000 made by Thrivent, his previous employer, in April 2012. This was to a client who alleged Matthes had made an unsuitable transfer from an income agreement to a variable annuity plan.
Matthes ran a one-person branch in Oconomowoc while with Mutual of Omaha. He lives in Pewaukee. According to his BrokerCheck record, Mutual of Omaha discharged him citing the fake account statements and diversion of client funds. Since 2019, Mutual has paid $2.2 million over 12 arbitration settlements with clients.
Prior to Mutual, he had worked with Thrivent Investment Management for 6 years.
Though Mutual representatives have not commented on the case, prosecutors in the Eastern District of Wisconsin did talk about one who spoke at the sentencing hearing last month and “explained how Matthes’ actions caused the company to expend considerable resources to investigate the matter and to reimburse most of the victims for their losses.”
Callie Briese, responding to an email for Thrivent, commented that the sentencing was for conduct during a period Matthes was no longer associated with Thrivent and “we trust the legal process resulted in the appropriate outcome.”
Matthes pleaded guilty in November 2019 and is understood to have cooperated with investigators. He has been handed a 63 months prison sentence, a year longer than that recommended by federal prosecutors in Wisconsin.
Matthes surrendered life insurance policies of $22K that enabled him to compensate his parents to the extent of $15K. It has been noted in the sentencing memo of the defense that Matthes “wishes to continue to work to pay back his restitution obligation.” The memo also noted the depression, betrayal and sleepless nights that victims have suffered from, over and above the financial loss and tax penalties on account of unauthorized withdrawals.
“Edward Matthes accepted full responsibility for his actions,” his attorney LaVoy said. “He plans to spend the rest of his life making up for his bad decisions and wishes to become a productive member of society.” Reacting to the sentence imposed by U.S. District Judge Brett Ludwig, LaVoy said Matthes believed it “was fair and he is prepared to serve his punishment.”
LaVoy added that “Once his behavior came to light, he fully cooperated with the FBI and the U.S. Attorney’s Office. He resolved the matter with a plea agreement and voluntarily surrendered all licenses related to the financial services industry. He expressed sincere remorse to the victims including his parents.”
Judge Ludwig noted that Matthes had “cultivated trust” from the clients through a “veneer of friendship” while robbing them of their savings. The length of time of the conduct, the number of losses, and the betrayal demanded an exemplary punishment that would deter future misconduct, the judge said.
Following the 5-year prison term, restitution and three years of supervised release have also been ordered by Judge Ludwig. In settling the regulator’s case in January 2020, Matthes has agreed to all injunctive relief sought by the SEC, including restitution. He pleaded guilty to three counts of wire fraud in the criminal case that followed. He will soon be notified when and where his sentence begins, by the Federal Bureau of Prisons.