Adviser and Principals, Including GC/CCO, Charged with Stealing from Public Plan
The SEC has filed suit against an investment adviser and its five principals, including its General Counsel and Chief Compliance Officer, for stealing money from a public pension plan. According to the SEC, the adviser managed real estate assets for the Detroit Police and Fire Retirement System. The SEC says that the adviser, without permission from the plan, took money from a cash account and purchased two shopping centers in California. The SEC charges that the adviser failed to disclose the purchases for several years despite many opportunities (reporting, Board presentations, etc.). The defendants feared disclosure because the properties dropped in value soon after the purchase. The SEC alleges that the GC/CCO knew about the unlawful use of funds and assisted the conspiracy to withhold the information from the pension plan.
OUR TAKE: It appears that the adviser’s principals got burned by a bad real estate market and then massively compounded the problem by lying to the client for several years. Most disturbing are the allegations that a GC/CCO helped the fraud and failed to advocate for immediate disclosure.