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Day: February 6, 2017

SEC Uses Anti-Fraud Rules to Prosecute Unregistered Fund Manager

The SEC has charged an unregistered fund manager with stealing nearly $4 Million in client funds by commingling assets and siphoning off investment funds for personal and business expenses.  The SEC asserts that the respondents hid their nefarious activities by providing false account statements that failed to show that the assets were heavily leveraged with margin accounts.  Although the respondent was not registered with the SEC or any state, the SEC charges violations of Section 10(b) (fraud in connection with purchase/sale of securities); Section 17(a) (fraud in the offering of securities); Sections 206(1) and 206(2) of the Advisers Act (investment adviser fraud); and Rule 206(4)-8 of the Advisers Act (fraud in pooled investment vehicles).

OUR TAKE: All this talk about repealing Dodd-Frank (see Cipperman podcast) will not stop the SEC from using the anti-fraud rules against fund managers even if they are not registered.  The SEC used the anti-fraud rules to pursue private fund manager wrongdoing long before enactment of the Dodd-Frank Act (See e.g. SEC v. Lawton (2009)).