SEC Charges Investment Firm and Two Executives with Defrauding Police and Firefighter Pension Funds (with Lofchie Comment and YouTube Selection)

The SEC announced fraud charges against an investment advisory firm and two of its executives for selling unsuitable investments to pension funds for police and firefighters, transit workers and other employees.

The SEC alleged that Gray Financial Group, the firm's president and co-CEO breached their fiduciary duty by steering public pension fund clients to invest in an alternative investment fund despite their awareness that the investments did not comply with Georgia law.

The SEC explained that although Georgia law allows most public pension funds in the state to purchase alternative investment funds, the investments are subject to certain restrictions with which Gray Financial Group's fund allegedly failed to comply.

Lofchie Comment: One lesson of this case is that anyone who sells financial products to municipal investors must make a sustained effort to learn which investment restrictions apply to each such investor. In the present case, the defendants were charged with selling interests in a hedge fund "to four Georgia public pension clients, despite the fact that they knew, were reckless in not knowing, or should have known that these investments did not comply with the restrictions on alternative investments imposed by Georgia law." The restrictions imposed by Georgia law on those municipal clients included (i) limits on the percentage of the fund that the clients could own; (ii) that a minimum number of other investors had invested in the fund already; and (iii) that the fund reached a minimum size.

Lofchie YouTube Selection: What Other Law Firm Scours the Web in Search of Off-Beat Renditions?

See: SEC Order.