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SEC Alleges that Lawyer/Adviser Swindled Concussed NFL Players

 

The SEC has filed a lawsuit against a lawyer that operated an investment adviser that allegedly defrauded former NFL players and misled them about the credentials of one of the principals.  The lawyer represented the players in class action concussion litigation against the NFL and then solicited them to invest in private funds that purportedly invested primarily in securities.  However, the SEC asserts that the fund primarily served to advance settlement payments to other clients in the litigation.  Also, the SEC charges that the respondents failed to disclose that the lawyer’s investment partner had a long regulatory and criminal history that included an industry bar and jail time.  Disclosure documents described the partner as an adviser and consultant when in fact he managed the funds and shared profits with the lawyer.  Item 9 of Form ADV requires disclosure of disciplinary information for any current employee, officer, partner, or “any person performing similar functions.”

The SEC views Item 9 disciplinary disclosures as critical to Form ADV because it provides potential clients with a window on an adviser’s reputation.  A person with a regulatory history can’t avoid disclosure simply by becoming a “consultant” when the actual duties and financials show otherwise. 

Adviser Indicted for Lying During SEC Deposition

An investment adviser was indicted in part for making a false declaration in a court proceeding by lying to the SEC during a sworn deposition.  The deposition occurred during an enforcement case that alleges that the adviser defrauded retirees by lying about account balances, falsifying documents, and creating false wires.  According to the SEC, the adviser lied in a deposition about providing false documents to investors.

OUR TAKE: Once a formal enforcement proceeding commences, any misstatements under oath can lead to criminal proceedings for perjury or lying to a regulator.  It’s always wise to ensure that the lawyer defending the enforcement action has sensitivity to the possible criminal prosecution implications.  An enforcement action may results in fines and industry bars, but criminal proceedings could result in jail time.