Adviser Charged with Overstating AUM and Hiding Financial Position
The SEC has instituted enforcement proceedings against a registered investment adviser that it alleges over-stated its assets under management to claim SEC registration eligibility and failed to disclose to clients its precarious financial position. The SEC charges that the respondent included assets of prospective clients in its AUM calculation on several ADV amendments in order to maintain SEC registration, rather than state registration. The SEC also charges that the firm violated Rule 206(4)-4(a)(1) by failing to disclose to clients and prospective clients of its deteriorating financial condition which included over $400,000 in net losses for fiscal 2009.
OUR TAKE: Misstating AUM to claim SEC registration eligibility and failing to disclose a material financial condition have become two SEC focus areas especially as the economy has deteriorated.