SEC Charges Massachusetts-Based Investment Adviser With Fraud

SEC Charges Massachusetts-Based Investment Adviser With Fraud

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On July 1, 2019, the Securities and Exchange Commission (SEC) announced charges against a Massachusetts-based investment adviser and its principal for their role in defrauding clients, and against the principal for fraudulent misuse of investor funds.

Of note from the charges:

  • From 2014 to early 2016, 40 of the adviser’s clients invested more than $7 million in securities of Oregon-based investment management company Aequitas Management LLC, which had been the subject of a previous SEC enforcement action. The adviser and its principal did not disclose to clients that Aequitas provided a significant financial incentive to recommend its securities: a $1.5 million loan and access to a $2 million line of credit.
  • The SEC found that reports filed by the adviser and its principal included material misstatements and omissions, particularly false representations that the repayment terms of the loan from Aequitas were not contingent on its clients investing in Aequitas.
  • The SEC’s order found that the principal, days after fraudulently inducing a $1 million investment from a client, spent $500,000 of that to pay off his personal taxes and make other payments to himself or for his personal benefit.
  • Without admitting or denying the charges, the adviser and principal consented to the order finding that they violated the antifraud provisions of the federal securities laws. As a result:
    • The principal was censured.
    • The adviser and the principal were ordered to pay disgorgement and prejudgment interest of $1,047,971 and a penalty of $275,000.
    • The principal was permanently barred from any association with any broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent, or nationally recognized statistical rating organization.

The SEC’s order is available here.

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Darren Mooney

Partner and Co-Head of Business Development

Darren Mooney is a Partner and the Co-Head of Business Development at Greyline. Before joining Greyline, Darren served as deputy chief compliance officer of Partner Fund Management where he held primary responsibility for the compliance program of the second-largest hedge fund in the Bay Area. Prior to that, Darren spent five years providing compliance consulting services at Cordium and then ACA Compliance Group, where he led the company’s San Francisco office and west coast operations. In addition to providing ongoing consulting services to a variety of investment managers, including hedge fund, private equity, venture capital, real estate, quantitative and other wealth managers, Darren also regularly guided clients through the SEC registration process, implemented tailored compliance programs, supported clients’ live SEC exams, and served as an SEC-mandated independent compliance consultant following an SEC enforcement action. Darren’s other experience includes serving as deputy chief compliance officer and associate counsel at F-Squared Investments where he directly supported the compliance program during the investigation and subsequent enforcement regarding historical advertising practices. Darren has a B.S. in Economics from the University of Delaware and a J.D. from Suffolk University Law School. He is a member of the Massachusetts bar.

Annie Kong

Partner and Head of Venture Capital
Annie Kong is a Partner and Head of the Venture Capital Division at Greyline. She provides ongoing compliance consulting to investment advisers and manages client relationships. Prior to joining Greyline, Annie was part of compliance and operations at a long-only manager-of-managers that advised pension fund clients. While there, she conducted compliance and operational due diligence on SEC-registered investment advisers on the platform. She also oversaw and counseled on various legal matters across the firm. Annie has a B.A. in Economics from the University of California, San Diego, and a J.D. from the University of San Diego School of Law. She is an active member of the State Bar of California.
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