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Category: anti-fraud

Non-U.S. Adviser Lied on Form ADV

The SEC censured and barred from the industry the principal of a non-U.S.-based investment manager for making false Form ADV statements.  The SEC charges the firm with falsely claiming (i) to have over $100 Million in assets under management, (ii) to have retained a nationally recognized auditor and prime broker for its funds, and (iii) a principal place of business in the United States, which was only a virtual office.  The SEC alleges that the Form ADV statements violated the antifraud rules of both the Securities Act and the Investment Advisers Act.  The SEC asserts jurisdiction because the respondents used interstate electronic communications to further the fraud.  The SEC claims proper venue because the defendants maintained a virtual office in New York. 

Form ADV is a securities law filing that gives rise to antifraud liability for misstatements.  The regulators will not overlook untruths as innocent marketing exaggerations.  Hire a lawyer or compli-pro to help prepare an accurate Form.   

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 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)).