Large Private Bank Fined $90 Million for Overstating AUM
A large foreign bank agreed to pay $90 Million and admit wrongdoing for overstating its private bank’s assets under management by prematurely re-classifying certain custody assets, thereby making misleading public filings. The private bank’s Chief Operating Officer was also censured and fined. According to the SEC, the COO pressured bankers to make an argument for re-classifying certain custody assets into its AUM calculation even where required triggers had not occurred. In several cases, the private bankers themselves indicated that the client had not promised or granted an investment mandate, although the firm hoped it would be considered. The re-classifications did not follow the firm’s publicly-disclosed policies and procedures.
OUR TAKE: Money management firms must resist the temptation to overstate assets under management, either in marketing materials or public filings. The SEC considers AUM to be a material fact upon which clients and investors rely.