Investment Adviser Charged by the SEC with Fraudulent Conduct

March 31, 2011

In March, the U.S. Securities and Exchange Commission (“SEC”) charged a Houston based investment adviser firm with fraudulent conduct related to offerings made to the clients of firm.  The SEC alleged that the Houston based investment adviser advised clients to invest in promissory notes issued by a financial media company also owned by the owner of the investment adviser firm.

Specifically, the SEC charged the owner of the Houston based investment adviser firm with authorizing an investment adviser representative of the firm to recommend to clients investing in the financial media company’s promissory notes without making required disclosures.  The promissory notes were marketed to clients without the disclosure that financial media company was in poor financial condition and was unlikely to repay the notes.  The investment adviser representative also failed to disclose that he and investment adviser firm’s owner had a significant conflict of interest because they both received salaries from the financial media company.

The SEC alleged that these practices violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, which prohibit advisers from defrauding clients.  Without admitting liability, the investment adviser firm owner agreed to pay a $65,000 fine and accepted a ban from future association with any investment adviser.  Click here to view the SEC’s release.

Posted by Bryan Hill
Labels: Advertising, SEC