SEC Charges that Firm’s Marketing Materials Lied about Co-Investing
An adviser agreed to pay over $1.1 Million in disgorgement, penalties, and interest for misrepresenting that it would co-invest alongside clients. According to the SEC, the respondent marketing materials stated that it co-invested with clients in CDOs for which it also served as collateral manager. However, the SEC asserts that the firm did not co-invest where the client purchased the entire available tranche. The SEC charges that the firm made no effort to hold back a portion for co-investment.
OUR TAKE: The respondent’s marketing materials should have said that the firm did co-invest with clients but not on every deal. Also, we suspect that the firm broadly defined “co-investment” to include acting as collateral manger. The lesson here is that firms must be very clear about commitments made in marketing materials.