A North Carolina money manager whose customers included a Georgia government agency and the Sea Island Co. is accused of improperly using investor funds to buy a nearly $4 million beach house, among other things.
No funds invested by the Georgia Ports Authority were part of the diverted funds, and the authority’s money is secure, according to an audit report issued Friday in an Atlanta federal court.
But an unknown amount of cash invested by the Sea Island Co. employee pension plan, along with money from about a dozen other investors, was used to buy a posh house on Pawley’s Island, S.C., and for other improper investments, according to a report from S. Gregory Hays, the receiver appointed to unwind the financial affairs of the investment advisor and his company.
Stanley Kowalewski, of Greensboro, N.C., also allegedly used investor funds to buy at inflated prices his Greensboro residence and the homes of his parents and brother-in-law, according a lawsuit filed against Kowalewski by the Securities and Exchange Commission.
The SEC filed the civil suit against Kowalewski and his firm, SJK Investment Management, in January. It alleges fraud for allegedly funneling $16.5 million from funds he managed into a separate investment vehicle he controlled. He is also accused of providing false investment statements.
The SEC contends Kowalewski used the cash for personal expenses, including the May 2010 purchase of the $3.9 million beach house, operating expenses and salaries for firm employees.
The Hays’ report said Kowalewski put money into a boutique retailer, a sports training franchise and North Carolina land developments, including a planned landfill.
Kowalewski, a basketball coach at Greensboro’s Oakridge Military Academy, also donated more than $470,000 to the school using investor funds, the report said.
“It just shows that nobody is immune,” said Hays, managing director of Atlanta-based Hays Financial Consulting. “[The investors] are major reputable firms that hired advisors [they trusted] and they got caught in this.”
Tom Todd, an attorney for Kowalewski, declined to comment after the hearing.
J. David Dantzler Jr., a Troutman Sanders attorney representing Hays Finanical in the company’s role as receiver, said Ports Authority funds are “segregated” in legitimate investments, and the initial inquiry found the authority did not lose any money.
According to the report, more than $13.5 million in Ports Authority funds were deposited in legitimate accounts at Goldman Sachs and BNP Paribas via Kowalewski’s firm. A spokesman for the authority couldn’t say exactly how long the authority used Kowalewski’s firm as an advisor, or how it decided to do business with the firm.
Robert Morris, the authority spokesman, said the funds “were held in separate accounts with major brokerages and are secure and are not part of the litigation.”
Sea Island’s pension invested $8.6 million in a fund managed by Kowalewski. It is unclear how much was directed into the so-called Special Opportunities Fund, which the SEC says was a vehicle for the diversion to Kowalewski’s use. Sea Island pensions were assumed last year by the quasi-governmental agency Pension Benefit Guaranty Corp. after the tony coastal resort went into bankruptcy.
A private school in Savannah and one in Northeast Georgia, as well as St. Joseph’s/ Candler Health System of Savannah, were among the groups invested in funds Kowalewski allegedly siphoned money from.
Kowalewski’s personal and business assets have been placed under the control of the receiver during the suit. He and his firm managed about nearly $80 million in assets.
