In A Show Of How The SEC Is Tightening RIA Compliance, A Chicago Advisor Is Barred From Securities Business

Monday, April 22, 2013 10:37
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In A Show Of How The SEC Is Tightening RIA Compliance, A Chicago Advisor Is Barred From Securities Business

Tags: compliance | RIA compliance | sec

RIAs better be accurate in disclosing how much money they manage. The Securities & Exchange Commission suddenly seems interested in such disclosures.

Umesh Tandon, 37, owner and chief compliance officer of an Simran Capital Management in Chicago, last week consented to a bar from the securities business for allegedly telling the California Public Employees Retirement System (CalPERS) that his firm managed more than $200 million when Simran actually managed only about $80 million.

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According to the SEC, Simran won a contract to manage money for CalPERS, one of the nation’s largest public pension funds, by marketing Simran as an experienced fixed income manager that applied a unique risk-averse strategy bearing a low correlation to equity and debt markets. CalPERS initially gave Simran $50 million to invest in May 2009, and the firm ran as much as $122 million for the pension fund in May 2010.

According to the SEC, CalPERS was one of at least 14 clients who agreed to hire Simran based on information that was purposely misleading.

An interesting side note: CalPERS fired Simran in April 2010, but it was only after a routine audit by the SEC that the agency found the allegedly fraudulent AUM figures. It’s unclear from the SEC cease and desist order whether CalPERS, which is known for shareholder activism, reported the allegedly inflated AUM figures to the SEC when it discovered them.

In addition to being barred from affiliation with a BD, RIA, and other securities businesses, ordered to disgorge $20,018 CalPERS had paid him, and to pay a $100,00 civil penalty plus interest.

RIAs that disclose their asset under management on their websites and in marketing materials should take note of this case. It's rare for the SEC to take action against a firm for misleading prospects and clients about how much it manages. However, with the SEC budget nearly doubling in the last few years, in compliance with the Dodd-Frank Act encated in July 2010, you can expect more actions like this one.     

 

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