The SEC instituted enforcement proceedings against an adviser that it accuses of falsely claiming SEC registration eligibility. The SEC alleges that the adviser initially registered by claiming that it had over $500 Million in assets under management and a year later changed its ADV to claim eligibility as a mid-sized adviser ($25-$100 Million AUM) domiciled in New York and/or Wyoming. However, the SEC maintains that the adviser never had any clients or assets under management. The SEC further accuses the adviser of soliciting clients using the false ADVs.
OUR TAKE: SEC registration has become a qualifying criterion for larger clients who feel more secure with an SEC-regulated firm that has more than $100 Million in AUM. Consequently, firms may feel the pressure to stretch their numbers to qualify, which could result in a painful enforcement action. There is no shortcut to success.