The SEC has sanctioned a former top executive at Cornerstone Equity Advisors this week for his participation in a acheme to defraud the Cornerstone Funds. According to the SEC, Cornerstone President James A. DeMatteo and an unnamed colleague submitted fraudulent bills that caused Cornerstone to misappropriate $126,741 from the its mutual funds. The 46-year-old DeMatteo is a resident of Staten Island, New York.

The SEC found that DeMatteo willfully aided and abetted and caused Cornerstone to violate Sections 206(1) and 206(2) of the Advisers Act and willfully violated Section 37 of the Investment Company Act. The regulatory agency imposed a cease-and-desist order against DeMatteo. It also barred him from the fund industry and ordered him to pay disgorgement of $111,741 plus prejudgment interest. DeMatteo neither agreed with nor denied the SEC's findings.

From November 2001 until February 2002, DeMatteo and the second employee doctored invoices submitted to the Cornerstone Funds by service providers in order to request payments in excess of the amounts actually due. They then instructed the funds' administrator to pay a related entity rather than pay the providers directly. When the inflated payments reached the bank account of the related entity, DeMatteo, who controlled the account, paid the service providers the actual amounts invoiced.

DeMatteo used the excess amount billed to the Funds to pay salaries - which were increased during the three month period - and other expenses, including office rent, health insurance, car service, meals and credit card bills.  

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