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UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

INVESTMENT ADVISERS ACT OF 1940

Release No. 5361 / September 23, 2019

ADMINISTRATIVE PROCEEDING

File No. 3-19494

In the Matter of

HCR WEALTH ADVISORS

Respondent.

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS, 

PURSUANT TO SECTIONS 203(e) AND 

203(k) OF THE INVESTMENT ADVISERS 

ACT OF 1940, MAKING FINDINGS, AND 

IMPOSING REMEDIAL SANCTIONS AND 

A CEASE-AND-DESIST ORDER

I.

The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 

public interest that public administrative and cease-and-desist proceedings be, and hereby are, 

instituted pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 

(“Advisers Act”) against HCR Wealth Advisors (“Respondent” or “HCR”).

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over it and the subject matter of these 

proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 

Administrative And Cease-And-Desist Proceedings, Pursuant To Sections 203(e) And 203(k) Of 

The Investment Advisers Act Of 1940, Making Findings, And Imposing Remedial Sanctions And 

A Cease-And-Desist Order (“Order”), as set forth below.
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III.

On the basis of this Order and Respondent’s Offer, the Commission finds1that:

SUMMARY

Respondent failed to reasonably supervise Jeremy Joseph Drake (“Drake”), formerly an 

investment adviser representative of HCR, and failed to implement reasonable compliance-related 

policies and procedures in response to red flags about Drake’s handling of client accounts. From 

2012 to July 2016, Drake defrauded two HCR clients, a married couple, out of approximately $1.2 

million in management fees, approximately $900,000 of which Drake received as incentive-based 

compensation from HCR. During the same period, Drake misappropriated a total of over $200,000 

from the married couple and two other HCR clients to support a struggling restaurant that was 

majority owned by the married couple and in which Drake held a minority ownership interest.

HCR failed to reasonably supervise Drake and to implement reasonable policies and 

procedures in response to warnings about Drake’s conduct and did not reasonably investigate when 

two clients complained about Drake’s handling of their accounts.

RESPONDENT

1. Respondent HCR Wealth Advisors (“HCR”) is a California corporation organized 

on September 1, 1996, with its principal place of business in Los Angeles, California. Respondent 

registered with the Commission as an adviser on April 16, 1999 and reported having over 700 

clients and more than $900 million in assets under management as of December 31, 2018.

OTHER RELEVANT INDIVIDUALS

2. Jeremy Joseph Drake, age 41, resides in Los Angeles, California. Drake worked as 

a registered investment adviser representative of HCR from March 2009 until early July 2016, when 

HCR terminated him for misconduct concerning client accounts. Before his termination, Drake 

managed over $50 million in assets for more than twenty HCR clients. In United States v. Jeremy 

Joseph Drake, Case No. 2:18-cr-0058 (CAS) (C.D. Cal.), Drake pleaded guilty to wire fraud and 

was sentenced to 30 months of incarceration and ordered to pay $1,228,912.20 in restitution.

3. Client A is married to Client B, who was, at the time of the conduct described 

herein, a professional baseball player. They were clients of Respondent and Drake from 2009 until 

early July 2016, when they ended their relationship with Respondent andDrake.

1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 

binding on any other person or entity in this or any other proceeding.
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4. Client C, age 79, was a client of Respondent and Drake from March 2009 to April 

2016, when she ended her relationship with Respondent and Drake.

5. Client D, age 56, was a client of Respondent and Drake from February 2014

to February 2015, when she ended her relationship with Respondent and Drake.

Drake’s Management-Fee Fraud

6. From late 2012 to early July 2016, Drake lied to Clients A and B about how much 

they were paying HCR in management fees. Whereas Drake said they were paying a “VIP” rate of 

between 0.15% and 0.20% of their assets under management each year, they were actually paying 

HCR’s standard 1.0% rate. Specifically, Drake told Clients A and B that HCR charged them 1.0% 

in the first instance, but then applied “fee credits” to their accounts over time, resulting in “net 

fees” of between 0.15% and 0.20%. In reality, HCR never had a “fee credit” or “net fee” system in 

place for any of its clients. As a result, HCR charged Clients A and B fees that were consistent 

with their signed advisory agreements, which provided for fees at a 1.0% rate, but were inconsistent 

with Drake’s false representations to those clients about “fee credits” and their “net fees.” 

7. To perpetuate this scheme, Drake lied to Clients A and B and their representatives 

in person and in numerous emails, text messages, and telephone calls, including dozens of emails 

sent from his HCR email address. Drake also created numerous false and misleading documents 

concerning their management fees, including fabricated brokerage statements, which he emailed 

to Clients A and B and their representatives. Drake also used a misleading email address, which 

he said belonged to a manager at the clients’ brokerage firm, to send more deceptive emails 

concerning the clients’ fees. Drake did not disclose the existence of that email address to HCR, 

and emails sent from and received by that email address were not available for review by HCR.

From late 2012 through July 2016, HCR collected approximately $1.5 million in management

fees from Clients A and B – about $1.2 million more than Drake said they were paying. HCR paid

approximately $900,000 of those additional fees to Drake as incentive-based compensation and 

retained the remaining $300,000.

Drake’s Request to Engage in Outside Business Activity with the Restaurant

8. In July 2013, Drake sought approval of outside business activity, namely, to assist 

Clients A and B in managing a restaurant near Los Angeles, California (the “Restaurant”). Clients 

A and B owned 100% of the Restaurant at the time, and the Restaurant had an account under 

Drake’s management at HCR. Drake informed HCR that Clients A and B had offered him an 

ownership interest in the Restaurant.

9. HCR’s outside compliance consultant advised HCR to determine the source of 

investments into the Restaurant before granting Drake’s request – warning of the risk of Drake’s use 

of another client’s funds to support the restaurant – and advised HCR to monitor all accounts related 

to the Restaurant on a least a quarterly basis to detect any misconduct.

10. Drake agreed not to accept an ownership interest in the Restaurant, and HCR 

permitted Drake to engage in the proposed outside activity of assisting in the management of the 

Restaurant. HCR did not determine the source of investments into the Restaurant and did not 
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engage in any additional monitoring of accounts related specifically to the Restaurant in light of 

Drake’s agreement not to accept an ownership interest.

11. Drake obtained a 3.0% ownership interest in the Restaurant in January 2014.

Drake’s Misappropriation of Client Funds to Support the Restaurant

12. The Restaurant encountered financial difficulties during 2014, and Drake 

misappropriated funds from his HCR clients to support it.

13. In February 2014, Drake misappropriated $75,000 from Client C, transferring the 

money directly from one of Client C’s accounts under his management to the Restaurant’s account 

under his management. The brokerage firm that acted as custodian of HCR’s clients’ accounts sent 

HCR a transmission verification report concerning the transfer, but because HCR was not 

specifically monitoring Restaurant-related accounts, it did not detect the improper transfer.

14. One week later, Client C’s son-in-law asked Drake about the missing $75,000, and 

Drake falsely blamed a “clerical error” or “bonds that came due.” Client C’s son-in-law pressed 

Drake for a more coherent explanation and, after a lengthy email exchange, which Drake 

conducted using his HCR email address, Drake falsely explained that he had invested Client C’s 

money and would return it with interest. For the next year, Drake repeatedly promised – and

failed – to return Client C’s money with interest.

15. In May 2014, Drake misappropriated $40,000 from Clients A and B to support the 

Restaurant, surreptitiously transferring the money from one of their non-Restaurant accounts to the 

Restaurant’s account under his management. Clients A and B noticed the transfer and 

reprimanded Drake via email for transferring funds without their permission or authorization.

16. In June 2014, Drake misappropriated $100,000 from Client D, transferring the 

money from one of Client D’s accounts under his management to one of the Restaurant’s bank 

accounts. Shortly thereafter, Client D’s financial manager noticed the missing money and emailed 

Drake for an explanation. In response, Drake falsely claimed that he had invested the money into 

a “pooled trust account” and sent the financial manager a number of misleading emails and 

fraudulent documents to support this false explanation, all of which he conducted using his HCR 

email address. HCR received a transmission verification report for the $100,000 transfer, but its

monitoring did not detect any improper transfers related to the Restaurant.

Client Complaints about Drake’s Misuse of Funds

17. In early February 2015, HCR received two contemporaneous complaints on behalf 

of Clients C and D concerning Drake’s handling of their accounts.

18. On February 9, 2015, Client C’s son-in-law complained to HCR about Drake’s

failure to return Client C’s $75,000.

19. Within the next three days, Client D’s attorney lodged a separate complaint with 

HCR, accusing Drake of failing to follow Client D’s repeated instructions to liquidate her holdings

and terminate her relationship with Drake and HCR. The complaint also included information 
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which put HCR on notice that Drake may have made improper transfers from Client D’s account.

Client D fired HCR shortlythereafter.

Failure to Supervise Drake and to Implement Policies and Procedures

20. At the time of Client C’s and D’s complaints, HCR’s policies and procedures 

required a prompt, thorough, and fair review of all client complaints, and a prompt and fair 

response to each complaint. They also required HCR to monitor Drake’s activities for potential 

violations of HCR’s policies and procedures, as well as potential violations of the federal 

securities laws, and to monitor HCR’s employees’ emails.

21. Despite these policies, in response to each complaint, however, HCR did not 

reasonably investigate or address Drake’s conduct. In each instance, HCR failed to follow up to 

learn what Drake had actually done to precipitate the complaint, relying excessively on Drake’s 

false descriptions of his conduct. 

22. By failing to investigate Drake’s activities in response to client complaints, HCR

also missed opportunities to learn about Drake’s ongoing management-fee fraud, which HCR

could have discovered by contacting Clients A and B in connection with Drake’s outside business 

activities or searching Drake’s emails for correspondence about the Restaurant. HCR employees 

never reviewed Drake’s emails or documents specifically with a focus on the red flags raised 

about Drake’s handling of client accounts, and HCR’s periodic, compliance-related email reviews 

were not tailored to Drake’s Restaurant-related activities or the potential misuse of client funds for 

outside business activities.

VIOLATIONS

23. As a result of the conduct described above, Respondent failed to engage in 

reasonable supervision of Drake within the meaning of Section 203(e)(6) of the Advisers Act, with 

a view to preventing Drake’s violations of Sections 206(1) and 206(2) of the Advisers Act.

24. As a result of the conduct described above, Respondent willfully1violated 

Section 206(4) of the Advisers Act, Rule 206(4)-7 promulgated thereunder, which requires 

registered investment advisers to adopt and implement written policies and procedures

reasonably designed to prevent violations of the Advisers Act.

HCR’S SELF-DISCLOSURE, COOPERATION, AND REMEDIAL EFFORTS

25. In determining to accept the Offer, the Commission considered Respondent’s 

 

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“Willfully,” for purposes of imposing relief under Section 206(4) of the Advisers Act, ‘“means no more than that 

the person charged with the duty knows what he is doing.’” Wonsover v. SEC, 205 F.3d 408, 414 (D.C. Cir. 2000) 

(quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)). There is no requirement that the actor “also be aware 

that he is violating one of the Rules or Acts.” Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). The decision in The 

Robare Group, Ltd. v. SEC, which construed the term “willfully” for purposes of a differently structured statutory 

provision, does not alter that standard. 922 F.3d 468, 478-79 (D.C. Cir. 2019) (setting forth the showing required to 

establish that a person has “willfully omit[ted]” material information from a required disclosure in violation of 

Section 207 of the Advisers Act.) 
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self-disclosure, cooperation, and remedial efforts. Respondent voluntarily disclosed Jeremy 

Drake’s misconduct to the Commission staff and to the United States Attorney’s Office for the 

Central District of California and timely shared the facts developed during the course of HCR’s

internal investigation conducted in response to its discovery of Drake’s misconduct. 

26. Respondent’s remedial actions included, among other things: (1) the retention 

of a new compliance consultant during the course of the Commission staff’s investigation to 

review and address Respondent’s compliance-related policies and procedures (the “Remedial

Compliance Consultant”); (2) a voluntary payment of $300,000 to Clients A and B; 

(3) enhancing its internal controls and compliance functions; and (4) hiring a new chief 

compliance officer. 

UNDERTAKINGS

27. Within ten (10) days of the issuance of the Order, to the extent Respondent 

has not already done so, Respondent shall pay $328,912.20 to Clients A and B.

28. Respondent shall not seek or receive indemnification, reimbursement, the 

assignment of any claim, or any other form of payment from Clients A and B for, or in 

consideration of, the payments referenced in paragraphs 26 and 27 of this Order.

29. For purposes of completing the undertakings set forth in this paragraph, 

Respondent undertakes to continue to retain, at its own expense, the services of the Remedial 

Compliance Consultant. Respondent further agrees to the following:

A. Within sixty (60) days of the issuance of the Order, to the extent Respondent 

has not already done so, Respondent will adopt and implement all recommendations included in the 

July 3, 2019 Memorandum Summarizing the Remedial Compliance Consultant’s Recommendations 

to HCR; provided, however, that as to any recommendation that Respondent considers to be, in 

whole or in part, unduly burdensome or impractical, Respondent may submit in writing to the 

Remedial Compliance Consultant and the Commission staff a proposed alternative reasonably 

designed to accomplish the same objectives. Respondent shall then attempt in good faith to reach 

an agreement with the Remedial Compliance Consultant relating to each disputed recommendation. 

In the event Respondent and the Remedial Compliance Consultant are unable to agree on an 

alternative proposal within sixty (60) days of Respondent’s written notice, Respondent will abide 

by the final determination of the Remedial Compliance Consultant with respect to any disputed 

recommendation. Within fifteen (15) days after the conclusion of the discussion of any disputed 

recommendation by Respondent and the Remedial Compliance Consultant, Respondent shall 

inform the Commission staff in writing of the final determination concerning any disputed 

recommendation. Within sixty (60) days after a final determination by the Remedial Compliance 

Consultant with respect to any disputed recommendation, Respondent shall adopt and implement 

the final recommendation by the Remedial Compliance Consultant.

B. After implementing all recommendations included in the July 3, 2019 

Memorandum Summarizing the Remedial Compliance Consultant’s Recommendations to HCR, 

Respondent will require the Remedial Compliance Consultant, no earlier than two hundred and 
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eighty (280) days and no later than three hundred and sixty (360) days after the issuance of this 

Order, to:

1. Conduct a review to assess whether Respondent is complying with 

its revised policies and procedures, and whether the revised policies and procedures are 

effective in achieving their stated purposes; and

2. Provide to Respondent additional recommendations for changes or 

improvements to the revised policies and procedures if needed to make the policies and 

procedures effective in achieving their stated purposes (the “Review Report”),

C. Within sixty (60) days after receiving the Review Report, to the extent 

Respondent has not already done so, Respondent will provide a copy of the Review Report to the 

Commission staff and adopt and implement all recommendations made in that report; provided, 

however, that as to any recommendation that Respondent considers to be, in whole or in part, 

unduly burdensome or impractical, Respondent may submit in writing to the Remedial Compliance 

Consultant and the Commission staff a proposed alternative reasonably designed to accomplish the 

same objectives. Respondent shall then attempt in good faith to reach an agreement with the 

Remedial Compliance Consultant relating to each disputed recommendation. In the event 

Respondent and the Remedial Compliance Consultant are unable to agree on an alternative proposal 

within sixty (60) daysof Respondent’s written notice, Respondent will abide by the final 

determination of the Remedial Compliance Consultant with respect to any disputed 

recommendation. Within fifteen (15) days after the conclusion of the discussion of any disputed 

recommendation by Respondent and the Remedial Compliance Consultant, Respondent shall 

inform the Commission staff in writing of the final determination concerning any disputed 

recommendation. Within sixty (60) days after a final determination by the Remedial Compliance 

Consultant with respect to any disputed recommendation, Respondent shall adopt and implement 

the final recommendation by the Remedial Compliance Consultant.

D. To ensure the independence of the Remedial Compliance Consultant, 

Respondent shall not have the authority to terminate the Remedial Compliance Consultant without 

prior written approval of the Commission’s staff and shall compensate the Remedial Compliance 

Consultant and persons engaged to assist the Remedial Compliance Consultant for the performance 

of services related to Respondent’s duties under the Order at their reasonable and customary rates.

E. Respondent will cooperate fully with the Remedial Compliance 

Consultant, including providing the Remedial Compliance Consultant with access to its files, 

books, records, and personnel (and the files, books, records and personnel of Respondent’s 

affiliated entities), as reasonably requested for the Remedial Compliance Consultant’s review, and 

obtaining the cooperation of respective employees or other persons under Respondent’s control.

F. Respondent will not invoke the attorney-client privilege or any other 

doctrine or privilege to prevent the Remedial Compliance Consultant from transmitting any 

information, reports, or documents to the Commission staff.

G. Respondent will require the Remedial Compliance Consultant to enter into 
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an agreement that provides that, for the period of engagement, and for a period of two years

following completion of the engagement, the Remedial Compliance Consultant shall not enter into 

any employment, consultant, attorney-client, auditing or other professional relationship with 

Respondent, or any of its present or former affiliates, directors, officers, employees, or agents 

acting in their capacity as such. The agreement will also provide that the Remedial Compliance 

Consultant will require that any firm with which it is affiliated or of which it is a member, and any 

person engaged to assist the Remedial Compliance Consultant in the performance of services 

related to Respondent’s duties under the Order shall not, without prior written consent of the 

Commission’s Los Angeles Regional Office, enter into any employment, consultant, attorneyclient, auditing or other professional relationship with Respondent, or any of its present or former 

affiliates, directors, officers, employees, or agents acting in their capacity as such for the period of

the engagement and for a period of two years after the engagement.

H. Respondent may apply to the Commission staff for an extension of the 

deadlines described above before their expiration and, upon a showing of good cause by 

Respondent, the Commission staff may, in its sole discretion, grant such extensions for whatever 

time period it deems appropriate.

I. Respondent will certify, in writing, compliance with the undertakings set 

forth above. The certification shall identify the undertakings, provide written evidence of 

compliance in the form of a narrative, and be supported by exhibits sufficient to demonstrate 

compliance. The Commission staff may make reasonable requests for further evidence of 

compliance, and Respondent will provide such evidence. Unless otherwise directed by the 

Commission staff, all reports, certifications, and other documents required by this Order to be 

provided to the Commission staff shall be sent to Alka Patel, Associate Regional Director, U.S. 

Securities and Exchange Commission, 444 S. Flower Street, Suite 900, Los Angeles, CA 90071.

30. The Commission’s acceptance of Respondent’s Offer of Settlement and entry of

this Order shall not be construed as its approval of any policies or procedures reviewed by the 

Remedial Compliance Consultant or implemented based on the Remedial Compliance 

Consultant’s recommendations.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondent’s Offer.

Accordingly, pursuant to Sections 203(e) and 203(k) of the Advisers Act, it is hereby 

ORDERED that:

A. Respondent cease and desist from committing or causing any violations and any 

future violations of Section 206(4) of the Advisers Act, and Rule 206(4)-7 promulgated

thereunder.

B. Respondent is censured.

C. Respondent shall, within 30 days of the entry of this Order, pay a civil money 
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penalty in the amount of $220,000 to the Securities and Exchange Commission. The 

Commission may distribute civil money penalties collected in this proceeding if, in its 

discretion, the Commission orders the establishment of a Fair Fund pursuant to 15 U.S.C. § 

7246, Section 308(a) of the Sarbanes-Oxley Act of 2002. The Commission will hold funds 

paid pursuant to this paragraph in an account at the United States Treasury pending a 

decision whether the Commission, in its discretion, will seek to distribute funds or, subject 

to Exchange Act Section 21F(g)(3), transfer them to the general fund of the United States 

Treasury. If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 

§ 3717. 

Payment must be made in one of the following ways:

(1) Respondent may transmit payment electronically to the Commission,which 

will provide detailed ACH transfer/Fedwire instructions upon request;

(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181,AMZ-341

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169

Payments by check or money order must be accompanied by a cover letter identifying HCR 

Wealth Advisors as Respondent in these proceedings, and the file number of these proceedings; a 

copy of the cover letter and check or money order must be sent to Alka Patel, Associate Regional 

Director, Division of Enforcement, Securities and Exchange Commission, Los Angeles Regional 

Office, 444 S. Flower Street, Suite 900, Los Angeles, CA 90071.

D. Regardless of whether the Commission in its discretion orders the creation of a 

Fair Fund for the penalties ordered in this proceeding, amounts ordered to be paid as civil money

penalties pursuant to this Order shall be treated as penalties paid to the government for all 

purposes, including all tax purposes. To preserve the deterrent effect of the civil penalty, 

Respondent agrees that in any Related Investor Action, it shall not argue that it is entitled to, nor 

shall it benefit by, offset or reduction of any award of compensatory damages by the amount of 

any part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”). If the 

court in any Related Investor Action grants such a Penalty Offset, Respondent agrees that it 

shall, within 30 days after entry of a final order granting the Penalty Offset, notify the 

Commission’s counsel in this action and pay the amount of the Penalty Offset to the Securities 

and Exchange Commission. Such a payment shall not be deemed an additional civil penalty and 

shall not be deemed to change the amount of the civil penalty imposed in this proceeding. For 
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purposes of this paragraph, a “Related Investor Action” means a private damages action brought

against Respondent by or on behalf of one or more investors based on substantially the same 

facts as alleged in the Order instituted by the Commission in this proceeding.

E. Respondent shall comply with the undertakings referenced in Paragraph 30 above.

By the Commission.

Vanessa A. Countryman

Secretary