The SEC charged
an unregistered day trader for lying about his trading success and misappropriating
client funds. The defendant convinced clients to hire him by asserting that
that he had done very well as a day trader over several years and then promised
over 50% annualized returns. Once retained,
the trader did very poorly and siphoned client assets for personal
expenses. According to the SEC, he then
concealed his misconduct by delivering false account statements and implementing
a microcap wash sale scheme. The
defendant also faces criminal charges brought by the U.S. Attorney’s Office for
the Eastern District of New York.
Lying about your investment track record constitutes securities fraud, subjecting you to civil and criminal penalties. Do not make performance claims unless you can affirmatively support your claims with hard data.
The staff of the Division of Investment Management has granted no action relief to allow a merged subsidiary to continue to use its performance track record. The SEC noted that the internal reorganization described would result in a newly-created division utilizing the same investment personnel and processes. The applicant, which merged the former separate entity into another investment adviser subsidiary, distinguished the reorganization from the Great Lakes no action letter, where the SEC came to a different conclusion because the new investment committee had personnel changes.
OUR TAKE: This letter will help investment adviser roll-ups by private equity firms and other strategic buyers by allowing internal corporate structuring freedom without fear of losing performance track records.