Adviser Misstated AUM to Attract Public Plan
The principal of a defunct investment adviser was barred from the industry and ordered to pay $121,000 in disgorgement and penalties for inflating his firm’s assets under management for purposes of obtaining allocations from a public pension plan. According to the SEC, the respondent’s firm claimed in a public plan RFP to have over $200 Million in assets under management, the minimum AUM required by the plan. However, the firm only had about $80 Million in AUM. The public plan, which rejected other money managers because of insufficient AUM, selected respondent’s firm, which then touted its relationship with the public plan in other marketing efforts. The SEC also charged the firm with filing a misleading ADV.
OUR TAKE: The temptation to inflate AUM for purposes of qualifying for SEC registration or attracting larger institutional clients can lead to significant regulatory action. Firms should evaluate their assets under management numbers based on the definition of regulatory assets under management in the Form ADV instructions.