CEO Hid Solicitation Payments and Then Lied to Clients and the SEC
The CEO of an investment adviser admitted wrongdoing and agreed to pay over $575,000 and an industry bar for paying undisclosed solicitation fees. The CEO also faces criminal charges for misleading SEC enforcement investigators, thereby obstructing proceedings of a federal agency. The respondent admitted to paying a lawyer-friend a referral fee without disclosure to the referred client as required by Rule 206(4)-3 of the Advisers Act. The pair conspired to conceal the payments through sham legal invoices. Upon hearing rumors of securities enforcement, the respondent sent false emails to clients claiming that the SEC had cleared the firm of any wrongdoing. The CEO’s firm agreed to pay disgorgement but avoided more damaging penalties because it discovered the conduct, disciplined the CEO, and reported the conduct to the SEC. The lawyer-solicitor was also fined and barred from the industry.
OUR TAKE: Failure to disclose the solicitation payments would have resulted in a disgorgement penalty and enhanced disclosure. Lying to clients and the SEC triggered the criminal prosecution and the increased fines and industry bar.