2003-07-16 -- Arlett, Alexis -- Guilty Plea -- News Release

Former Investment Advisor Pleads Guilty to Embezzling $3.3 Million from Clients and Evading $900,000 in Federal Income Taxes

TRENTON - A former investment advisor today pleaded guilty to embezzling $3.3 million from the investment accounts of her clients and evading more than $900,000 in federal income taxes, U.S. Attorney Christopher J. Christie announced.

Alexis Arlett, 44, of Montgomery Township, pleaded guilty to one count of wire fraud and one count of income tax evasion contained in a five-count Information, according to Assistant U.S. Attorney Scott S. Christie. Among other things, Arlett admitted that she used the millions embezzled from clients of her company to finance a lavish lifestyle, including the purchase of at least $1.3 million in jewelry, hundreds of thousands of dollars worth of paintings and other art work and tens of thousands of dollars in clothing and accessories.

Arlett entered her plea before U.S. District Judge Anne E. Thompson, who scheduled sentencing for Oct. 21. The wire fraud count carries a maximum penalty of five years in prison and a $250,000 fine. The tax evasion charges carries a maximum penalty of five years in prison and a $100,000 fine.

According to the Information to which she pleaded guilty, Arlett was the sole owner and operator of Arlett & Associates, Inc., a state-registered investment advisor in Montgomery Township. The Information states that Arlett's duties included, among other things, management of clients' money for investment in a variety of securities, including stocks, bonds and mutual funds. According to the Information, the majority of Arlett & Associates' clients maintained their investment accounts at one broker-dealer. Arlett & Associates also maintained an account at this broker-dealer, which is unnamed in the Information, for Arlett's advisory fees.

The Information states that Arlett & Associates had an advisory agreement with most of its clients which entitled the company to annual advisory fees on the following basis: 1.5 percent of assets under management up to $200,000; one percent of assets under management between $200,000 and $1 million; and .75 percent of assets under management of more than $1 million. Most of the Arlett's clients had authorized the broker-dealer to remit advisory fees to Arlett by debiting their individual investment accounts and crediting Arletts' advisory fee account. Arlett communicated directly with the broker-dealer regarding the amounts of advisory fees to be credited to her account

At her plea hearing, Arlett admitted that from September 1995 through November 2000, she routinely submitted to the broker-dealer fraudulent claims for advisory fees that greatly exceeded those which she was entitled to under the fee structure. Arlett admitted that she caused the broker-dealer to transfer approximately $3.3 million in embezzled funds from client investment accounts into her advisory fee account. She admitted that the total amount she embezzled was the equivalent of more than half of the entire value of all the Arlett & Associates investment accounts maintained at the broker-dealer at the height of their collective value.

Arlett admitted that in an effort to cover-up the embezzlement, she advised investment clients that the monthly account statements issued by the broker-dealer, which accurately revealed the true magnitude of the embezzlement of funds from their individual investment accounts, contained billing and accounting errors. Arlett admitted that she also provided investment clients with altered monthly account statements that grossly inflated the value of their investment accounts. Furthermore, Arlett admitted that she provided clients with advisory fee invoices that contained grossly inflated figures for the value of their investment accounts in order to justify her exorbitant claims for advisory fees.

Arlett also admitted that she failed to declare the embezzled funds as income on the federal tax returns she filed jointly with her husband for the tax years 1996 through 1999, evading the payment of more than $922,000 in taxes.

In the filing of a felony Information, a defendant waives the right to have his or her case presented to a federal grand jury and, instead, pleads guilty to charges presented by the Government.

Under U.S. Sentencing Guidelines, Judge Thompson will determine Arlett's actual sentence based upon a formula that takes into account the severity and characteristics of the offense, and the defendant's criminal history, if any. Parole has been abolished in the federal system. Under Sentencing Guidelines, defendants who are given custodial terms must serve nearly all that time.

U.S. Attorney Christie credited Postal Inspectors of the U.S. Postal Inspection Service, Newark Division, under the direction of Postal Inspector in Charge Martin Phanco, and Special Agents of the Internal Revenue Service, Criminal Investigation section, under the direction of Anne D. Fahy, Special Agent in Charge in Newark; and Special Agents of the FBI, under the direction of Special Agent in Charge Louie F. Allen in Newark, with developing the case against Arlett. Christie also offered special thanks to the staff of the Securities and Exchange Commission, Philadelphia District Office, under the direction of District Administrator Arthur Gabinet.

The Government is represented by Assistant U.S. Attorney Scott Christie of the U.S. Attorney's Commercial Crimes Unit in Newark.

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Defense Attorney: Jeremy D. Frey, Esq. Cherry Hill