Adviser Fails to Disclose Conflict of Interest of Investing Client Assets into an Affiliated Mutual

September 28, 2016

The SEC brought charges against Jan Gleisner and Keith Pagan and their registered investment adviser, Belvedere Asset Management LLC, for failing to disclose material conflicts of interest to clients whose money Belvedere used to fund an affiliated mutual fund. From January 2013 through April 2014, Gleisner invested about a third of the assets held by Belvedere’s individual clients into Belvedere’s new mutual fund, Belvedere Alternative Income Fund. The SEC found that Belvedere, Gleisner and Pagan failed to disclose to clients the material conflicts of interest inherent in these investments due to the adviser’s financial incentives to invest clients in the affiliated mutual fund.

The SEC further found that Pagan also caused Belvedere’s violations of the Advisers Act relating to compliance rules and Form ADV delivery requirements, which were tasks he was specifically required to perform pursuant to Belvedere’s policies and procedures. Specifically, per Belvedere’s compliance manual, the SEC stated that Pagan had the responsibility to amend and deliver to clients Belvedere’s Form ADV Part 2 disclosing this conflict, but he did not do so. In November 2012, Belvedere filed an amended Form ADV Part 2 disclosing in Items 5.A and 5.C that Belvedere may invest clients in registered funds advised by it, which would create conflicts of interest to the extent that Belvedere receives fees on both account and fund assets. Belvedere identified its conflicts of interest related to the mutual fund as a material change to the Form ADV Part 2. In addition to filing the amended Form ADV, Belvedere was required to offer or deliver the Form ADV Part 2 or a summary of the material changes to clients, but Belvedere failed to do so before Gleisner purchased BAIF in his clients’ accounts or at any time thereafter, including within 120 days of Belvedere’s fiscal year-end.

Click Jan Gleisner and Keith Page, Investment Advisers Act Rel. No. 4537 (September 29, 2016) to access the enforcement action.