SEC Charges Adviser with Recommending Self-Dealing Investments
The SEC charged an investment adviser and its principal with breach of fiduciary duty and disclosure failures for directing clients to invest in illiquid securities controlled by the principal. The SEC charges that the respondents failed to inform clients that recommended investments included a foreign company that funneled payments to the principal soon after the investments were made. The SEC also charges that the respondent set up a sham company to siphon fees off a consumer loan portfolio without performing any real services. The SEC also asserts that the respondents falsely assured the clients about the safety and security of their investments.
OUR TAKE: Do not invest client assets in securities in which the firm or any of its principals have a financial interest. Although disclosure and consent may offer some protection, the SEC highly scrutinizes this type of self-dealing.