Insolvent Adviser Barred from Industry But Pays No Penalty
The principal of an investment adviser was barred from the industry following SEC charges that he misled investors but had no assets to pay any penalties or disgorgement. The SEC alleges that the respondents advertised false hypothetical investment performance, inflated assets under management to facilitate SEC registration, and invested assets contrary to the PPM. The SEC conditioned any reapplication on payment of appropriate restitution to harmed investors. One investor lost 90% of his investment.
OUR TAKE: An industry bar is cold comfort to the harmed investor. We think that requiring firms to undergo an annual independent compliance exam could prevent these types of frauds.