The SEC has charged a Colorado-based investment adviser with fraud and breach of fiduciary duty in connection with the adviser's allegedly unsuitable recommendations and inadequate disclosures to clients who invested in certain hedge funds operated and managed by the adviser (In re Greenberg, SEC, Admin. File No. 3-14033, 9/7/10).
Neal Greenberg, the CEO of Tactical Allocation Services, LLP, on behalf of his firm recommended to the firm's clients an investment in its hedge funds based upon Mr. Greenberg's assertion such investments were suitable for conservative and older investors. The funds attracted about $174 million in investments from about 100 clients. Instead of a conservative investment, the funds utilized leverage while investing in non-diversified securities. The funds suffered heavy losses in 2008 and refused to make redemptions for their investors.
The written disclosure documents for the funds refuted Mr. Greenberg's oral statements to clients about the use of leverage and diversification of investments. In addition, Mr. Greenberg is charged that his firm failed to have in place adequate compliance policies and procedures with respect to client recommendations. Finally, Mr. Greenberg allegedly failed to inform clients that they would be charged performance and incentive fees on the leveraged portion of the investments in the funds.
If the SEC's charges are proven, Mr. Greenberg could be subject to, among other things, fines and disgorgement.