On April 27 of this year, craigslist, the online classified advertising behemoth, carried this small notice: “I am requesting information on Jeffry Wetzel from Poway, CA. We invested $135,000 with what he calls a hedge fund. MAXXUM EQUITY FUND LLC is a Nevada corporation. We have been trying to get our money back for over a year now. If anyone knows if he is a crook or a con artist please contact me immediately.” The identity of the person who placed the ad was not given, but he or she could be reached through an email link. The ad has since been taken down.
Gripes by people being fleeced in San Diego are routine, but there are two salient factors about Maxxum Equity Fund. First, Wetzel confirms, there are people who want out of this fund. And second, one investor in the fund is San Diego mayor Jerry Sanders. His statement of economic interest, filed under penalty of perjury with the City of San Diego, reveals that he has $10,000 to $100,000 invested in Maxxum. The mayor’s statements going back to 2005 also list the same investment.
The road by which Sanders got into the fund raises new questions about his ability, or willingness, to do due diligence, the process that a prudent investor undertakes to investigate the operations and management of an institution into which he intends to plunk money.
Sanders did not respond to requests for comment regarding this story, but Jeffry Wetzel, proprietor of Maxxum, did, describing how he met the future mayor and became his broker and subsequently his money manager.
According to Wetzel, before going into Maxxum, Sanders was investing his money through the now-shuttered Centex Securities, one of the smelliest brokerage houses in San Diego history. Wetzel was a stockbroker at Centex in 1998. Sanders’s Centex account “was reassigned to me” after a broker departed, says Wetzel. That’s important, because some of those brokers went to jail. Wetzel says he doesn’t know the name of the person who formerly handled the Sanders account.
It’s almost impossible to conclude that Sanders did his homework on Wetzel and Centex. Court records reveal that Wetzel has an alleged history of doing just what Centex was infamous for: engaging in rapid-fire buying and selling, or churning customers’ accounts to maximize brokerage commissions, and putting elderly people in wholly inappropriate, speculative stocks.
Wetzel claims he knows nothing about the craigslist ad. “I don’t know where they get $135,000,” he says. “Is somebody playing a joke?” But Wetzel admits some investors want to get their money back. “There are people who want to get out — they say, ‘Work us out as the market allows.’ ” He is hoping for a market recovery that will permit him to return the funds to investors without them getting skinned.
The market has been volatile, and Maxxum Equity Fund has suffered some losses, he allows. “I am trying to get people out without having the market take them out. My ultimate goal is not to have any new investors. The goal is that I will trade for only myself and my family.” (In his filing with the City, Sanders calls Maxxum a hedge fund and says he is a “partner” — a curious designation for a limited liability company, or LLC. Wetzel says that Maxxum is really a private equity fund, not a hedge fund, and Sanders is only a passive investor, having no role in ownership or management. The parent company, Maxxum Equity Holdings LLC, is registered in Nevada but is listed by the secretary of state’s office there as being in “default.” However, it does not appear that Maxxum Equity Fund has filed a securities registration in either Nevada or California.)
There may be investors who want to get out, but not at the slow pace Wetzel talks about. Certainly, the person who placed the craigslist ad, if the account is accurate, would be one. Thomas Vincent Moore of La Jolla earlier worked with Wetzel at Centex. Moore knows of someone “who has been trying to get his money out for the good part of six months,” he says. That investor has tried to learn the current status of the fund. (Wetzel wouldn’t tell us how much money is in the fund.) The investor has received some of his money but allegedly not what he requested.
We located the investor, who didn’t want to speak. Another person close to the investor says that Wetzel recruited him to join Wetzel’s insurance business. (Both Wetzel and his wife Kimberly, a stockbroker at Morgan Stanley in Rancho Bernardo, have insurance licenses.) But the insurance deal didn’t pan out.
Sources say that Wetzel told one investor wanting out that he could get his money as soon as more funds came in the front door. Wetzel strongly denies he said that. He also denies that he is paying an out-of-town investor $20,000 a month as a way of easing him out of the Maxxum fund.
According to one source, Wetzel boasted to potential clients that the mayor of San Diego had money in the fund.
Wetzel touts his track record — one at which savvy investors should cock an eyebrow. It shows Wetzel making 10.6 percent on the fund’s money during the last three quarters of 2001, a time of a vicious bear market. The Standard & Poor’s 500 index, the best measurement of the performance of the broad market, plunged 11.89 percent that year, including gains from dividends.
Wetzel claims his fund made 12.11 percent in 2002, a year in which the S&P 500 plus dividends plummeted 22.1 percent. Wetzel asserts he made the money being short — that is, betting that stocks would go down. Shorting stocks, however, is a treacherous business, even in bear markets. Any potential investor should check those 2001 and 2002 trades very closely.
Wetzel says he went to the University of Nevada, Las Vegas, but didn’t graduate. He worked construction jobs for some time, then became a stockbroker with several firms. When he landed at the downtown La Jolla office of Centex in early 1998, he brought some of the accounts he had had while working with other firms.