False Claims Lead CCO to Trouble with SEC
This enforcement action is a good reminder for chief compliance officers to make sure information is accurate on Form ADV filings.
The SEC entered into a settlement with an investment adviser that fraudulently inflated the assets under management reported on its Form ADV.
According to court documents published last month, the SEC issued a cease-and-desist against a chief compliance officer, who claimed on a 2015 Form ADV his firm, Black Diamond, held assets under management worth over $583 million when, in reality, it managed no marketable assets.
One of the categories allowing an investment adviser to register with the SEC is a firm with $100 million or more in assets under management.
In 2016, the CCO–also listed the company’s managing member and chief investment officer–changed information on his company’s ADV, claiming it was a mid-sized advisory firm with assets valued between $25 million and $100 million, court documents said. In reality, the firm had a market value of less than $5.4 million at the time.
The CCO used the ADVs to solicit potential investment advisory clients. Additionally, he listed his Calverton, New York home address as Black Diamond’s. The SEC became alerted of this activity and revoked Black Diamond’s registration and barred its CCO from advising activity for three years.
The case serves as a reminder to ACG private equity members that Form ADV filings are made under penalty of perjury, with the chief compliance officer certifying that the information and statements contained in the filing are true and correct.
