SEC Files Suit Against State-Registered Adviser
The SEC has filed a federal lawsuit against a state registered investment adviser for making misrepresentations in connection with the sale of interests in two funds. The SEC alleges that the adviser, who was registered with the State of Tennessee, did not use proceeds invested as described in the PPM. The SEC alleges violations of the Advisers Act’s anti-fraud provisions. According to the SEC, the alleged fraud was uncovered as a result of a routine FINRA exam into the BD with which the principal was associated.
OUR TAKE: This action may be an example of the future regulatory regime. The Senate finance legislation proposes to move more advisers to state jurisdiction by raising the threshold for SEC registration to $100 Million (currently $25 Million). The SEC would leave examinations to the state regulators and FINRA (as in this case) where the adviser has an affiliation with a broker-dealer. Upon a finding, FINRA or the state securities commission can refer an action to the SEC for prosecution under the Advisers Act.