SEC Charges Adviser with Failing to Disclose Self-Interested Hedge Fund Investments

July 28, 2017

The SEC charged Columbia River Advisors, LLC, a registered investment adviser, and two of its principals, Benjamin Addink and Donald Foy, with failing to disclose certain conflicts of interest caused by certain investments made by the hedge funds they advised. The SEC stated that the firm attempted to grow its investment advisory business through these transactions.

The SEC found that Addink and Foy organized and managed their first hedge fund whose primary investment strategy was to trade in foreign currencies. They later created a second hedge fund to loan money to the firm in its capacity as the general partner and investment adviser to the fund, which used the money to acquire other advisory firms’ books of business. Beginning in June 2012, the firm according to the SEC caused the foreign currency-focused fund to make sizable investments into the fund that loaned money to the firm. The SEC stated that the firm failed until long after making the investments, to inform the investors in the foreign currency-focused hedge fund that some of the fund’s assets were used to increase the size of the firmm’s investment advisory business (and, in turn, its potential profits). In addition, the auditor the firm hired to audit the funds’ financial statements was not qualified under the Advisers Act custody rule, and the firm did not timely distribute audited financial statements to the funds’ investors for the 2012 and 2014 fiscal years as required under the rule.

Click here to access the enforcement action.