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SEC Claims Investment Adviser Exaggerated AUM to Attract Clients

Adviser compliance attorney New YorkIn previous posts, we have discussed that the Securities and Exchange Commission has stepped up enforcement of registered investment advisers, particularly when it comes to their Form ADVs. A recent SEC enforcement action highlights what can happen when advisers are less than truthful.

Recently, the SEC charged a Chicago investment adviser and its principal with “grossly exaggerating” the firm’s assets under management and making other false and misleading statements. In particular, the SEC complaint alleges that Calhoun Asset Management LLC and Krista Lynn Ward told one asset management firm that Calhoun had grown from $27 million in AUM in 1999 to $200 million in 2006. In reality, the firm had only $3 million under management at that time, the SEC stated.

In addition to misleading potential clients, Ward also filed numerous false Form ADVs for Calhoun. For instance, the firm’s February 2009 form indicated that it had $79.8 million in assets under management, when it really had $7 million, the SEC said. She also misrepresented the assets of another Chicago investment adviser firm where she was the chief executive, representing it had $300 million under management, when it never managed any assets, according to the SEC complaint.

The SEC’s enforcement division is seeking a cease-and-desist order against the firm and Ms. Ward and possible fines and restitution for investors.

“We believe it’s important to take action when an adviser is inflating assets under management in an attempt to attain clients,” said John Sikora, assistant director of the Chicago regional office.

The Message for Advisers

As this enforcement action demonstrates, the SEC is making good on its promise to more closely scrutinize Form ADVs. In addition, it will take swift action against violators. Therefore, it is important for advisers to verify all of the information contained in any forms submitted to the SEC is complete and accurate.

Source: Investment News

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