I Wanna Grow Up!  The Challenges of Being a Small Adviser

July 1, 2017

Managing money is hard enough.  Then comes the sales and marketing part......and the temptation to overstate your performance and assets is just too much for some.

A recent settled administrative action by the SEC is illustrative.  The adviser had only $4 million AUM, but wanted to appear larger.  So he registered his firm federally with the SEC:  big No-No!

In its action,the SEC asserted that the adviser filed multiple Form ADVs stating that it had $200 Million in AUM and was thus eligible for SEC registration as an adviser even though the firm had only $4 Million in AUM. What's worse is that the misrepresentation led clients to invest with the adviser who then stole from them.  As a result, the adviser was charged with misappropriating client assets, failing to comply with the Advisers Act's custody and recordkeeping rules, and charging excessive fees.

Case link:  In the Matter of Bantry Bay Capital, LLC and Timothy F. Sexton, Jr., Investment Advisers Act of 1940 Release No. 4724 / June 30, 2017

Posted by Karl Hartmann, July 1, 2017