In three separate matters since the start of 2015, the SEC has reported enforcement actions against SEC registered investment advisers and certain of their principals for, among other things, falsely reporting to the SEC and the public the amount of their assets under management (AUM).
In the matter of Logical Wealth Management, Inc. and Daniel J. Gopen (SEC IA Release No. 4027, February 19, 2015), in the matter of Acamar Global Investments, LLC and Rudolph A. Martin (SEC IA Release No. 4050, March 18, 2015) and the in the matter of Aegis Capital, LLC, Circle One Wealth Management, LLC, Diane W. Lamm, Strategic Consulting Advisors, LLC and David I. Osienboro (SEC IA Release No. 74608, March 30, 2015), the SEC alleged violations under the Investment Advisers Act of 1940, for, among other things, filing a false statement with the SEC with respect to the registrant’s amount of AUM at the time of filing its Form ADV with the SEC. The information included in the Form ADV filing is available to the public and is required to be provided by the investment adviser to clients and prospective clients.
In the case of the Logic Wealth Management matter, the adviser and its president and chief compliance officer (CCO) agreed to the issuance of an SEC cease and desist order, revocation of the adviser’s SEC registration and the CCO’s bar from association with an investment adviser, among others, and serving or acting as an employee, officer, director or member of an advisory board of an investment adviser. In addition, the CCO was ordered to pay a $25,000 civil penalty. In the Logical Wealth Management matter, the adviser never qualified for SEC registration by having the required AUM (i.e., at least $100 million in AUM), although it repeatedly reported on its Form ADV that it did.
In the Acamar Global Investments matter, the adviser reported on Form ADV that it had in excess of $180 million of AUM when in fact, it never had more than $200,000 of AUM. In order to settle the matter, the adviser and its principal agreed to the issuance of a cease and desist order and a bar for Mr. Martin from being associated with, among other entities, an investment adviser or serving as an employee, officer, director, or member of an advisory board of an investment adviser. A civil penalty was not imposed by the SEC after the respondents filed a notice of an inability to pay a civil penalty.
In the matter of Aegis Capital, et al., the adviser had outsourced the adviser’s CCO responsibilities to an outside compliance firm, Strategic Consulting Advisors. David Osienboro an attorney and principal of the outside compliance firm was designated on the adviser’s Form ADV as its CCO. Aegis had falsely claimed on its Form ADV to have nearly $165 million of AUM and over 1,500 clients when in fact, it never had that much of AUM or number of clients. With respect to such conduct, according to the SEC, the adviser and the outside CCO by filing an inaccurate Form ADV with the SEC, violated Section 207 under the Advisers Act which makes it unlawful for a person to make an untrue statement of a material fact in a report filed with the SEC. The SEC issued a cease and desist order against the various respondents and will determine at a later date, what, if any, other penalties will be issued in the matter.
All three of these matters, announced in the first three months of 2015, demonstrate the gravity of making a false filing with the SEC. Although each of the matters described above had allegations of violations of certain other provisions under the Advisers Act, the common thread is the false reporting by the advisers of AUM within the Form ADV.