The SEC has commenced proceedings against the principal of a venture capital fund manager for failing to properly register as an investment adviser under state law. The Connecticut securities regulator entered a final order alleging failure to register the fund manager as an investment adviser under Connecticut law and making false representations about the success of the funds. The action led to criminal proceedings to which the respondent entered guilty pleas. Now, the SEC has begun proceedings to implement federal civil penalties under the Advisers Act.
Avoiding required registration will not long go unnoticed. Eventually, the state securities regulators or the feds will find you. Your risk goes up exponentially if an aggrieved client has lost money or a competitor raises eyebrows.