ADVISER REGAINS COMPANY $67,000 PENALTY ORDERED.

Byline: David Greenberg  Staff Writer

SIMI VALLEY - A local investment adviser who lost $5.3 million in a high-risk venture involving 240 clients is getting his company back from the state after agreeing to pay $67,000 in fines and legal costs.

Eric Vonn Schultz will soon regain control of his firm under an agreement with state regulators that he no longer operate what they termed an ``illegal mutual fund.'' The agreement also requires a private accountant to monitor his books for two years.

``We did not find any evidence that he was taking money for his own use,'' said Julie Stewart, a spokeswoman for the state Department of Corporations, which seized control of Schultz Investment Advisory on Feb. 18.

``With the proper restrictions placed on his business license, we feel that there would be sufficient oversight to prevent him from violating the law (again).

``This was a very significant case,'' she said. ``It's the first time the department has taken a major action against an investment adviser.''

With $9 million given to him by clients in Ventura County and the San Fernando Valley, Schultz bought high-risk technology derivatives that would have turned a profit only if a Y2K computer bug disrupted Wall Street, officials said. When the new millennium arrived without an cyber hitch, the portfolio's value dropped from $8.9 million to $3.6 million.

Despite Schultz's claim that the stocks' value increased by 40 percent from Jan. 1 to Feb. 18, 2000, the department seized the remaining assets - about $4 million - and financial records of the one-man operation.

``These people trusted me completely and the pool investors included pastors, churches, charities, family and close friends,'' Schultz said in an interview. ``Watching the money deteriorate was the worst experience in my life to date.

``It was devastating - but it feels like that was a long time ago. I'm satisfied that I get to go back into business to serve the people again and help a lot of my former clients to recover and restore what was lost.

``By having these investors become whole again,'' he said, ``I will feel like I've restored their trust in me.''

Regulators also said that Schultz ran into additional problems by creating a ``master account'' for all of his clients' money, rather than using separate accounts for each investor.

Furthermore, he commingled his own money with clients' accounts, which is illegal, regulators said.

``He was running the equivalent of a mutual fund and didn't have a license to do so,'' said David Ray, a Westwood attorney who was hired by the department to oversee an audit of the company.

``It may be wrong, but it's not necessarily criminal.''

Ray said investors have received about 90 percent of the $4 million the government seized and he expects to return the balance - $680,000 including interests and gains on recently liquidated stocks - in the near future.

During a receivership hearing held May 2 in Ventura County Superior Court, Judge Thomas Hutchins ruled that Schultz could regain control of his firm on the condition that he:

--Increase the minimum client investment from $5,000 to $50,000, which prevents nonaffluent individuals from participating in risky investments.

--Pay the $50,000 in fines and legal costs to the Department of Corporations by Oct. 31. Schultz also must pay $17,000 by July 1, to cover the state's financial review of his operation.

--Pay a private investment consultant - it will be The Consortium of Camarillo - to monitor his reports and filings with the state for two years.

--Place clients' money directly into brokerage accounts to be traded collectively, as opposed to putting the money into accounts bearing his name.

Despite an initial claim by regulators that criminal charges could be filed, Schultz said he was never concerned about facing prosecution.

``I knew I had done nothing criminal and I had no intention to harm anybody,'' he said. ``My greatest concern was that (the state) had the power to remove me from the business forever.''

Although Schultz said he saved himself personal legal costs by representing himself throughout the process, he said he has paid Ray close to $100,000 in fees, plus $30,000 to auditors hired by Ray.

Schultz said he expects to lose about 100 of his 250 clients as a result of the losses incurred and the state's $50,000 minimum investment policy, which he said upset some clients.

One Ojai financial consultant, who lost $171,000 of the $250,000 he invested with Schultz, said he has no intention of divesting from the firm.

``He knows what he is doing. He is a very good account manager. I think he will have made back the money that he lost within 12 to 18 months and ultimately I'll make a very good profit,'' the investor said.

``He just made a mistake. But the mistake was not part of his trading plan. He went outside of his own trading perimeters. Now that he is sticking within his perimeters, he's making money again. From what I understand, most of the investors are coming back to him. They know he is honest.''