SEC Charges Advisor with Overstating Assets under Management

A publicly traded asset management firm and its former co-CEOs settled SEC charges for misrepresenting the firm's assets under management and earnings.

According to the SEC Order, the firm negligently overstated its assets under management in multiple public filings by including "commitment" amounts from non-discretionary clients, even though such clients had no legal obligation to make such investments. Further, the co-CEOs made "positive projections" for the firm's growth but had no reasonable basis for doing so. These misleading projections were included in the firm's proxy materials to encourage investors in business development companies that were also managed by the firm to purchase the firm as a portfolio company.

As a result, the SEC found that:

• the firm and the co-CEOs violated Sections 17(a)(2) and (a)(3) of the Securities Act ("Fraudulent interstate transactions"), Sections 206(2) and 206(4) of the Advisers Act ("Prohibited Transactions by Investment Advisers") and Rule 206(4)-8 ("Pooled investment vehicles") thereunder, Section 14(a) of the Exchange Act and Rule 14a-9 thereunder, and Section 13(a) of the Exchange Act and Rules 12b-10, 13a-1, 13a-11, 13a-13, 13a-15(a) and (b) thereunder; and

• the co-CEOs violated Rule 13a-14(a) under the Exchange Act.

To settle the charges, the firm and the co-CEOs agreed to (i) collectively pay $10 million in civil penalties, (ii) cease and desist from any future violations of the above rules and (iii) a censure.