Consulting Services Group, LLC, or CSG, was a registered investment adviser whose business included providing consulting services to public pension funds. These consulting services included recommending third-party investment advisers to actively manage public pension accounts.
According to the SEC, during the relevant time period, CSG either failed to disclose or mischaracterized in its Forms ADV a 2009 $50,000 personal loan between its then Chief Executive Officer and a New York-based third-party investment adviser (the “New York Investment Adviser”) that CSG had recommended to certain of its public pension and other clients. CSG settled an enforcement action with the SEC where the SEC alleged CSG’s failure to disclose this conflict of interest to its pension fund clients was in violation of Sections 206(2) and 207 of the Advisers Act. In the settlement CSG did not admit or deny the facts alleged by the SEC.
The SEC alleged that sometime after the loan was discovered, CSG began disclosing the loan in its Form ADV. CSG allegedly stated the loan from the New York Investment Adviser to the CEO was for $50,000 at 3.10% interest as an advance of a redemption related to the CEO’s investment in the New York Investment Adviser’s long/short hedge fund. The disclosure stated repayment had not been made and was pending. The disclosure further noted this presented a potential conflict in that CSG may recommend the New York Investment Adviser over other money managers as a result of the loan.
The SEC alleged the foregoing statements were false and misleading. CSG failed to disclose that the note was over two years past due, and accruing interest at the default rate of 8% per year. Additionally, according to the SEC, the loan was not “an advance of a redemption” and it was not “related to” the CEO’s investment.
Separately, the SEC has commenced an administrative proceeding against the CEO for related matters.