Adviser Defrauded Client by Overvaluing Firm’s Equity, SEC Charges
The SEC filed an administrative action against an investment adviser alleged to have defrauded its clients by, in part, selling an interest in the adviser at an inflated valuation. According to the SEC, the adviser’s principal convinced a client to buy an equity interest in the adviser in an effort to alleviate his significant financial problems. The SEC charges that the respondent convinced the client to pay an unreasonable price for the equity interest. The SEC argues that the adviser used an unreasonable valuation based on an inflated multiple, optimistic revenue numbers, and a growth premium.