Investment Advisers (RIAs) are financial professionals or firms that manage investments and provide advice to clients and are required by law to register with the U.S. Securities and Exchange Commission (SEC) if they manage assets above a certain threshold. Registered advisers must comply with stringent regulatory standards under the Investment Advisers Act of 1940, including fiduciary duties to act in the best interests of their clients, providing full disclosure of conflicts of interest, maintaining proper records, and adhering to SEC rules on client communications and advertising. They undergo regular examinations by the SEC to ensure compliance with these standards. In contrast, Exempt Reporting Advisers (ERAs) are a subset of investment advisers exempt from full SEC registration but still required to file reports with the SEC, such as a truncated version of Form ADV. ERAs often include advisers who solely manage private funds and have assets under management below the SEC registration threshold, allowing them to avoid the comprehensive regulatory requirements applicable to SEC-registered RIAs while still providing basic disclosure to the SEC and complying with anti-fraud provisions of federal securities laws.
You can find out how to get in touch with your state securities regulator to obtain information about additional requirements with individual states. You can locate state-registered investment advisers through the website of the North American Securities Administrators Association, Inc. (NASAA).
File ID: DOJ-PR-240612.1
Date: June 12, 2024
Accessed: July 11, 2024
Headline: New York Fund Manager Admits Multimillion-Dollar Investment Fraud Scheme
Categories:
DOJ-PR-240612.1 – Viewer: ▼▼▼ (Download PDF File ⊗)
DOJ-PR-240612.1
SEC-PR-2024-72 (JUN. 12, 2024)Washington D.C., June 12, 2024 — The Securities and Exchange Commission today charged Joshua Goltry and his investment management firm, JAG Capital Advisors LLC (JAG Advisors), in connection with a three-year scheme to defraud investors of at least $3 million.
According to the SEC’s complaint, from 2020 to 2023, Goltry, the founder and Chief Investment Officer of a purported equity fund called JAG Cap, LLC, and JAG Advisors, the purported equity fund’s investment manager, raised at least $3 million from approximately nine investors by lying about nearly every aspect of the fund, including its performance, investment activity, and investment risks. Goltry is the principal of JAG Advisors. As alleged, of the funds raised, Goltry and JAG Advisors used at least $1.1 million on personal expenses, including travel and jewelry, and lost more than $1.7 million through high-risk trading and speculative investments. The complaint further alleges that Goltry and JAG Advisors falsified documents, including expense invoices, to conceal the trading losses from investors.
“As alleged in the complaint, Goltry and JAG Advisors repeatedly lied to investors to lure them into investing in the JAG Fund and then lost their money or stole it to pay for lavish personal expenses,” said Nicholas P. Grippo, Regional Director of the SEC’s Philadelphia Regional Office. “We will continue to diligently hold accountable those who exploit investors’ trust for personal gain.”
The SEC’s complaint charges Goltry and JAG Advisors with violating antifraud provisions of the federal securities laws. Goltry and JAG Advisors agreed to settle the charges against them. The settlement, which is subject to court approval, would permanently enjoin Goltry and JAG Advisors from violating the charged provisions of the federal securities laws and allows the court to decide the amounts of disgorgement, prejudgment interest, and civil penalties at a later date.
In a parallel action, the U.S. Attorney’s Office for the District of New Jersey announced criminal charges against Goltry.
The SEC’s investigation was conducted by Suzanne C. Abt and Michael Cuff and supervised by Julia C. Green, Scott A. Thompson, and Mr. Grippo, all of the Philadelphia Regional Office. The litigation will be led by Judson T. Mihok and supervised by Gregory R. Bockin.
SEC-PR-2024-64 (MAY. 29, 2024)According to the SEC’s orders, from 2020 to 2022, New York City-based MassAve, an investment adviser that made Asia-focused investments and that held more than $1 billion in regulatory assets under management, made a series of materially false and misleading statements about its flagship opportunity fund’s holdings and exposures. The orders found that some of the false statements were the result of modifications Feng made to underlying portfolio data, which MassAve then included in investor communications, such as its monthly tear sheets, summary portfolio snapshots, and top 10 position lists. In addition, according to the SEC’s orders, from late 2022 to early 2023, MassAve did not report to its investors a conflict of interest arising from MassAve’s other co-founder operating a separate hedge fund in China. The SEC’s order against MassAve also found failures in the firm’s compliance policies and procedures.
According to the SEC’s orders, in January 2023, MassAve reported to investors that its communications about the flagship fund were inaccurate and did not contain appropriate disclosures. Soon thereafter, MassAve received a wave of redemption requests and has since been winding down operations.
“Complete and accurate reporting at all turns, whether in investor communications or about conflicts of interest, is vital to investor protection,” said Osman Nawaz, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit. “We will continue to hold individuals accountable for falling short in making such disclosures.”
The SEC’s orders found that MassAve violated the antifraud and compliance provisions of the Investment Advisers Act of 1940 and that Feng violated the antifraud provisions of the Advisers Act. Without admitting or denying the SEC’s findings, MassAve and Feng consented to the entry of the SEC’s orders requiring them to cease and desist from further violations, censuring MassAve, and imposing the penalties listed above.
The SEC’s investigation was conducted by Joseph P. Ceglio and Kelly Rock, of the Division of Enforcement’s Complex Financial Instruments Unit, with assistance from Ling Yu and Travis Hill, of the New York Regional Office, and was supervised by Joshua Brodsky, also of the Complex Financial Instruments Unit.
SEC-PR-2024-57 (MAY. 15, 2024)Investment Adviser Statistics contains more than 50 separate tables of aggregated data. The public may download the statistics in a structured format, which provides a historical statistical series of information dating back to the year 2000. The report shows that, as of the end of last December, there were more than 15,000 registered investment advisers that reported approximately $128 trillion in regulatory assets under management.
“Providing accessible, usable, aggregated data to the public is a critical part of the SEC’s role,” said SEC Chair Gary Gensler. “This new report will give the public a clearer view into the investment advisory industry. Such SEC-published data help the public better understand how our economy and securities markets function.”
“Form ADV data offers a uniquely comprehensive view of the asset management industry,” said Tim Husson, head of the Division of Investment Management’s Analytics Office. “The statistics in this report illustrate the phenomenal growth and changing nature of the advisory business and will help inform public policy in this space.”
“The publication of this data will provide valuable information to the public,” said SEC Chief Economist Jessica Wachter. “The report enhances transparency into an important segment of our capital markets.”
The Division of Investment Management has primary responsibility for administering the Investment Company Act of 1940 and Investment Advisers Act of 1940, including oversight of investment companies, such as mutual funds, money market funds, and ETFs, and for investment advisers. The Division’s Analytics Office provides the Division and the SEC with practical reviews and actionable analyses of the asset management industry.
The report is available on the SEC’s website here ⊗.
SEC-PR-2024-55 (MAY. 14, 2024)Washington D.C., May 14, 2024 — The Securities and Exchange Commission today announced settled charges against New York-based registered investment adviser Hudson Valley Wealth Management Inc. and its founder, Christopher Conover, for breaching their fiduciary duties by failing to disclose conflicts of interest and making misleading statements to their clients. To settle the charges, Hudson Valley agreed to pay a civil penalty of $200,000, and Conover agreed to pay more than $600,000 in disgorgement and prejudgment interest and a $150,000 civil penalty.
According to the SEC’s order, between September 2017 and October 2021, Hudson Valley and Conover advised a private investment fund and their individual clients to make investments in films produced by a particular film production company. At the same time, Conover, through his affiliated company, received approximately $530,000 from the production company in exchange for the money that the investment fund and the individual clients invested in these same films. Hudson Valley and Conover initially failed to disclose these payments to the clients and then later misrepresented that Conover earned this compensation for work as an executive producer on these films.
In addition, the SEC’s order finds that, in May 2021, Hudson Valley and Conover satisfied a redemption request from one fund investor but did not satisfy several redemption requests submitted at the same time by other fund investors who were Hudson Valley advisory clients. By preferencing one investor’s redemption request over other client redemption requests, Hudson Valley and Conover violated their fiduciary duties to the other clients.
“Fully and fairly disclosing conflicts of interest are at the heart of an investment adviser’s fiduciary duty,” said Andrew Dean, Co-Chief of the Enforcement Division’s Asset Management Unit. “Investors must have confidence that their investment advisers are treating them fairly and acting in their best interest when investing their funds.”
The SEC’s order finds that Hudson Valley and Conover violated the antifraud provisions of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. In addition to disgorgement and penalties, Hudson Valley and Conover agreed to cease-and-desist orders and censures.
The SEC’s investigation was conducted by Brian Kudon of the Division of Enforcement’s Asset Management Unit and David Zetlin-Jones and Hermann Vargas of the New York Regional Office, with assistance from Kerri Palen and James Addison, also of the New York Regional Office. The investigation was supervised by Lee A. Greenwood, and Mr. Dean of the Asset Management Unit, and Sandeep Satwalekar and Antonia Apps of the New York Regional Office.
SEC-PR-2024-54 (MAY. 13, 2024)Under this proposal, RIAs and ERAs would be required to implement reasonable procedures to identify and verify the identity of their customers, among other requirements, in order to form a reasonable belief that RIAs and ERAs know the true identity of their customers. The proposed rule would make it more difficult for criminal, corrupt, or illicit actors to establish customer relationships — including by using false identities — with investment advisers for the purposes of laundering money, financing terrorism, or engaging in other illicit finance activity.
This proposed rulemaking complements a separate FinCEN proposal in February 2024 to designate RIAs and ERAs as “financial institutions” under the Bank Secrecy Act (BSA) and subject them to AML/CFT program requirements and suspicious activity report (SAR) filing obligations, among other requirements. That proposal cites a Treasury risk assessment ⊗ (PDF) that identified that the investment adviser industry has served as an entry point into the U.S. market for illicit proceeds associated with foreign corruption, fraud, tax evasion, and other criminal activities. Together, these proposals aim to prevent illicit finance activity in the investment adviser sector and further safeguard the U.S. financial system.
“The proposed rule is designed to make it more difficult to use false identities to establish customer relationships with investment advisers,” said SEC Chair Gary Gensler. “I support this proposal because it could reduce the risk of terrorists and other criminals accessing U.S. financial markets to launder money, finance terrorism, or move funds for other illicit purposes.”
“Criminal, corrupt, and illicit actors have exploited the investment adviser sector to access the U.S. financial system and launder funds,” said FinCEN Director Andrea Gacki. “This proposal would help investment advisers better identify and prevent illicit actors from misusing their services, while advancing a harmonized set of CIP obligations.”
The rule, if adopted, would require RIAs and ERAs to, among other things, implement a CIP that includes procedures for verifying the identity of each customer to the extent reasonable and practicable and maintaining records of the information used to verify a customer’s identity, among other requirements. The proposal is generally consistent with the CIP requirements for other financial institutions, such as brokers or dealers in securities and mutual funds.
The proposal is published ⊗ (PDF) on SEC.gov and will be published in the Federal Register. The public comment period will remain open for 60 days after publication of the proposing release in the Federal Register.
SEC-PR-2024-44 (APR. 3, 2024)According to the Commission’s order, from at least January 2019 through December 2021, Senvest employees at various levels of authority communicated about company business internally and externally using personal texting platforms and other non-Senvest messaging applications in violation of the firm’s policies and procedures. Senvest also failed to maintain or preserve the off-channel communications as required under the federal securities laws and the firm’s policies and procedures. In one instance, three senior employees engaged in off-channel communications on personal devices that were set to automatically delete messages after 30 days. Additionally, the order finds that certain Senvest employees failed to adhere to provisions of the firm’s code of ethics requiring them to obtain pre-clearance for all securities transactions in their personal accounts.
“The Commission continues to focus on regulated entities’ compliance with the recordkeeping requirements. Adherence to these requirements is essential for the Commission to effectively exercise its regulatory oversight and enforce the federal securities laws,” said Eric Werner, Director of the Fort Worth Regional Office.
The order finds that Senvest violated certain recordkeeping and ethics provisions of the Investment Advisers Act of 1940 and failed to reasonably supervise with a view to preventing and detecting violations. In addition to the $6.5 million penalty, Senvest was censured and ordered to cease and desist from future violations of the relevant provisions of the federal securities laws. The firm also agreed to retain a compliance consultant to, among other things, conduct comprehensive reviews of its policies and procedures relating to the retention of electronic communications found on personal devices and the framework for addressing non-compliance by its employees with those policies and procedures.
The SEC’s investigation was conducted by Tom Keltner, Jaime Marinaro, and Jeaneen Kappell of the Fort Worth Regional Office and was supervised by Timothy McCole, B. David Fraser, and Mr. Werner.
SEC-PR-2024-42 (MAR. 27, 2024)“These amendments modernize a 22-year-old rule to better protect investors in a digital age,” said SEC Chair Gary Gensler. “These changes better reflect what it means in 2024 truly to provide an exclusively internet-based service. This will better align registration requirements with modern technology and help the Commission in the efficient and effective oversight of registered investment advisers.”
The amendments will become effective 90 days after publication in the Federal Register. An adviser relying on the internet adviser exemption must comply with the rule, including the requirement to amend their Form ADV to include a representation that the adviser is eligible to register with the Commission under the internet adviser exemption, by March 31, 2025. Most investment advisers will have filed their annual updating amendments to Form ADV by this date i.e., 90 days after the Dec. 31, 2024, fiscal year end). An adviser that is no longer eligible to rely on the amended exemption and does not otherwise have a basis for registration with the Commission must register in one or more states and withdraw its registration with the Commission by filing a Form ADV-W by June 29, 2025.
SEC-PR-2024-36 (MAR. 18, 2024)“We find that Delphia and Global Predictions marketed to their clients and prospective clients that they were using AI in certain ways when, in fact, they were not,” said SEC Chair Gary Gensler. “We’ve seen time and again that when new technologies come along, they can create buzz from investors as well as false claims by those purporting to use those new technologies. Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.”
“As more and more investors consider using AI tools in making their investment decisions or deciding to invest in companies claiming to harness its transformational power, we are committed to protecting them against those engaged in ‘AI washing,’” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “As today’s enforcement actions make clear to the investment industry – if you claim to use AI in your investment processes, you need to ensure that your representations are not false or misleading. And public issuers making claims about their AI adoption must also remain vigilant about similar misstatements that may be material to individuals’ investing decisions.”
According to the SEC’s order against Delphia, from 2019 to 2023, the Toronto-based firm made false and misleading statements in its SEC filings, in a press release, and on its website regarding its purported use of AI and machine learning that incorporated client data in its investment process. For example, according to the order, Delphia claimed that it “put[s] collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else.” The order finds that these statements were false and misleading because Delphia did not in fact have the AI and machine learning capabilities that it claimed. The firm was also charged with violating the Marketing Rule, which, among other things, prohibits a registered investment adviser from disseminating any advertisement that includes any untrue statement of material fact.
In the SEC’s order against Global Predictions, the SEC found that the San Francisco-based firm made false and misleading claims in 2023 on its website and on social media about its purported use of AI. For example, the firm falsely claimed to be the “first regulated AI financial advisor” and misrepresented that its platform provided “[e]xpert AI-driven forecasts.” Global Predictions also violated the Marketing Rule, falsely claiming that it offered tax-loss harvesting services, and included an impermissible liability hedge clause in its advisory contract, among other securities law violations.
Without admitting or denying the SEC’s findings, Delphia and Global Predictions consented to the entry of orders finding that they violated the Advisers Act and ordering them to be censured and to cease and desist from violating the charged provisions. Delphia agreed to pay a civil penalty of $225,000, and Global Predictions agreed to pay a civil penalty of $175,000.
The SEC’s Office of Investor Education and Advocacy has issued an Investor Alert ⊗ about artificial intelligence and investment fraud.
The SEC’s investigations were conducted by Anne Hancock, HelenAnne Listerman, and John Mulhern under the supervision of Kimberly Frederick, Brent Wilner, Corey Schuster, and Andrew Dean with the Division of Enforcement’s Asset Management Unit. Ragni Walker, Thomas Grignol, and Peter J. Haggerty of the Division of Examinations and Roberto Grasso of the Division’s Office of Risk and Strategy assisted with the investigations.
SEC-PR-2024-30 (MAR. 1, 2024)Under the federal securities laws, a company that owns more than five percent of a public company’s stock must report its position and whether it has a control purpose, which is an intention to influence or control the company. According to the SEC’s order, on Feb. 14, 2022, HG Vora disclosed that it owned 5.6 percent of Ryder’s common stock as of Dec. 31, 2021, and certified that it did not have a control purpose. The order states that HG Vora then built up its position to 9.9 percent of Ryder’s stock and formed a control purpose no later than April 26, 2022. The federal securities laws therefore required it to report its control purpose and its current ownership position by May 6, 2022, but it did not report this information until May 13. On that same day, HG Vora sent a letter to Ryder proposing to buy all Ryder shares for $86 a share, a sizeable premium over the trading price. Before the letter to Ryder and its filing, and after forming a control purpose, HG Vora purchased swap agreements that gave it economic exposure to the equivalent of 450,000 more shares of Ryder common stock. After HG Vora’s public announcement of its bid on May 13, 2022, Ryder’s stock price increased significantly.
“The federal laws and SEC rules covering ownership disclosure help keep investors fully informed about control – and potential changes in control – of publicly traded companies,” said Mark Cave, Associate Director of the SEC’s Division of Enforcement. “But, according to today’s order, HG Vora deprived Ryder shareholders of information about its significant stake in the company, while building a large swaps position from which it stood to profit after announcing the Ryder takeover bid.”
The SEC’s order finds that HG Vora violated the beneficial ownership provisions of the Securities Exchange Act of 1934. Without admitting or denying the findings, HG Vora agreed to cease and desist from future violations and to pay the civil penalty discussed above. On Oct. 10, 2023, the SEC adopted rules shortening the deadline for filing an initial Schedule 13D from 10 to five business days. HG Vora was found to have violated the rules in effect at the time of the conduct at issue in the SEC’s order by filing this report more than 10 days after forming a control purpose.
The SEC’s investigation was conducted by Jonathan Cowen with assistance from Robert Nesbitt of the Office of Market Intelligence and Nicholas Panos from the Office of Mergers & Acquisitions. The investigation was supervised by Assistant Director Jeffrey Weiss and Mr. Cave.