It's Official: The SEC Is Checking ADV Claims And Punishing "Creative" Errors

Friday, December 30, 2011 09:15
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It's Official: The SEC Is Checking ADV Claims And Punishing

Tags: sec

Yes, the SEC really is reading Form ADV disclosures now and comparing them to reality. One firm is currently facing a cease-and-desist order after allegedly inflating its AUM by several orders of magnitude.

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Calhoun Asset Management got into the hedge fund business back in 2006, claiming that its advisory assets had surged from a healthy $27 million in 1999 to over $200 million.

 

Unfortunately, the SEC can't find any record of the Illinois firm ever running more than $3 million during that time period.

 

Likewise, by 2009 Calhoun claimed that its AUM was up around $80 million. It was maybe in the $7 million range.

 

As the SEC complaint points out, Calhoun principal Krista Ward "herself completed and electronically signed" the ADV forms throughout this period for an affiliated firm, Skore Financial Management -- and the figures look equally inflated.

 

The regulators have other problems with this firm, but one thing is clear: they're putting their money where their mouth is and are finally fact-checking disclosures.

 

For those of us who thought they were doing it all along, it's a little bittersweet. But late is better than never.

Comments (6)

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BILL KELLY
There are always "other problems" and I think you people are just throwing out scare bombs to entice us to subscribe to your service. These people seem to be patently dishonest.
BILL KELLY , December 31, 2011
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ScottMartin
Bill: I'd like to think A4A readers' ADV disclosures have been accurate all along. For them, this is something to cheer about. The regulators are finally catching up with RIAs that lie in disclosures to potential investors.

We've been following this shift in SEC exam priorities for months. See:

http://advisors4advisors.com/compliance/broker-dealers/article/14618-sec-vows-again-to-get-tough-on-adv-frauds

http://advisors4advisors.com/compliance/regulatory/article/14499-sec-confesses-it-will-probably-never-be-able-to-supervise-rias-as-often-as-congress-wants

Thanks for reading.
ScottMartin , January 01, 2012
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brentb843
While I would agree Andy seems to favor IBD reps over RIA IAs, I think that the underlying message is important for those who have their own RIA and use Third Party Asset Management Platforms (TAMPs).

If both you and your TAMP count one of your client's assets on both form ADVs, you have a problem. Which firm is really supervising?

I believe we will see many firms have to lower their AUM aggressively because they are acting in a pure solicitor capacity in regards to their client's accounts.

brentb843 , January 05, 2012
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agluck
That's a ridiculous thing to say--that I "favor" BD reps over IA reps. I favor good advisors. I don't care if they're LLCs, S-Corps, RIAs, Registered Reps, CFPs, or CFAs. I favor advisors who are transparent, knowledgeable, and care about their clients. I favor advisors who are professionals. But they practice in many different ways. And no one type of advisor has cornered the market on professionalism.
agluck , January 05, 2012
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brentb843
Andy - I think your response is ridiculous. S-Corps, LLC are corportate structures. CFPs and CFAs are designations.

On thing I would really challenge to explore are the regulatory environments that and RIA IAR (RIAs are firms, their advisors are IARs) and Registered Reps operate in.

For example, you have said in the past that you believe Registered Reps of broker-dealers are perfectly fine undertaking financial planning. The reality from both their compliance and FINRA is that they do not. READ THE PLAN DISCLOSURES. Call a few compliance departments.

Secondly, to no fault of their own, RR cannot operate in a transparent environment because their B/D does not fully disclose conflicts as it is not required.

I think it is time we quit believing that each method is homogenous, because it is not. Most importantly RIAs and their IARs need to comprehend this because many are not fulfilling their duty to clients when they leave the wirehouse and then implement the same business model.

Further, I am confused in regards to 'they practice in many different ways.' Regulatory environments impact this more than you believe.

brentb843 , January 07, 2012
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brentb843
My original line was in response to the first thread and the amount of stories run on FINRA being an obvious SRO for RIAs in 2011.

That has never been much more than a Ketchum dream, but A4A writes as it is a foregone conclusion.


brentb843 , January 07, 2012

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