INVESTMENT ADVISORY FIRM CHARGED WITH ENGAGING TRANSACTIONS WITHOUT INFORMING CLIENTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today charged an investment advisory firm located outside Tacoma, Wash., with engaging in hundreds of principal transactions through its affiliated broker-dealer without informing clients or obtaining their consent. 

Strategic Capital Group LLC, which is additionally charged with distributing false and misleading advertisements to investors, agreed to pay nearly $600,000 to settle the SEC’s charges.  The firm’s CEO N. Gary Price was charged with causing some of the firm’s violations, and agreed to pay a $50,000 penalty to settle the charges against him.

In a principal transaction, a firm acting for its own account or through an affiliated broker-dealer buys a security from a client account or sells a security to it.  Principal transactions can pose potential conflicts between the interests of the adviser and the client, and therefore advisers are required to disclose in writing any financial interest or conflicted role when advising a client on the other side of the trade.  They also must obtain the client’s consent.

An SEC investigation found that Strategic Capital engaged in more than 1,100 principal transactions through its brokerage affiliate RP Capital LLC without making the required disclosures to clients or obtaining consent beforehand.  Strategic Capital also failed to seek best execution for the transactions it executed through RP Capital.  Price signed regulatory filings falsely stating that the firm did not engage in principal transactions.

The SEC investigation also found that Strategic Capital provided prospective investors with a pair of false and misleading advertisements.  One advertisement failed to disclose that the portrayed results were partially based on returns of an index rather than actual, historical returns achieved by Strategic Capital’s recommendations.   The second advertisement did not disclose that the portrayed results did not deduct fees and thus materially overstated Strategic Capital’s investment performance.

“Investment advisers must be fully forthcoming about how they execute client trades and portray past performance,” said Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “Strategic Capital clients were not provided all of the information they needed to evaluate the firm’s potential conflicts of interest and investment management skills.”

According to the SEC’s order instituting a settled administrative proceeding, Strategic Capital also failed to implement proper compliance procedures at the firm.

The SEC’s order finds that Strategic Capital, based in Gig Harbor, Wash., violated the Investment Advisers Act of 1940, specifically the antifraud, principal transactions, advertising, compliance, and reporting provisions.  The order finds that Price caused Strategic Capital’s violations of the compliance and reporting provisions.  Strategic Capital’s disgorgement amount of $368,459 will be distributed to current and former clients, and the firm also must pay prejudgment interest of $17,831 and a penalty of $200,000.  Without admitting or denying the findings in the order, Strategic Capital and Price agreed to cease and desist from committing or causing future violations of these provisions. 

The SEC’s investigation was conducted by Jeremy E. Pendrey and Erin E. Schneider, who work in the Asset Management Unit in the San Francisco Regional Office.  The SEC examination that led to the investigation was conducted by Tracey Bonner, James Marchi, and Alice Schulman of the San Francisco office’s investment adviser/investment company examination program.

CEO OF SIMRAN CAPITAL MANAGEMENT CHARGED WITH LYING BY SEC

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., April 18, 2013 — The Securities and Exchange Commission charged the CEO of Chicago-based investment advisory firm Simran Capital Management with lying to the California Public Employers' Retirement System (CalPERS) and other current and potential clients about the amount of money managed by the firm.

Institutional investors such as CalPERS often use assets under management (AUM) as a metric to screen prospective investment advisers soliciting their business. An SEC investigation revealed that while pitching Simran's services, Mesh Tandon falsely certified to CalPERS that his firm satisfied its minimum AUM requirements. After fraudulently obtaining the business from CalPERS, Tandon also falsely inflated Simran's AUM in communications with other potential clients with whom he touted his firm's relationship with CalPERS. Tandon also fraudulently reported an inflated AUM in filings with the SEC, and he later attempted to mislead SEC examiners during a routine examination of Simran.

Tandon, who previously lived in Chicago and now resides in Texas, has agreed to settle the SEC's fraud charges.

"Tandon deliberately undermined the CalPERS screening process by grossly misrepresenting his firm's purported assets under management," said Merri Jo Gillette, Director of the SEC's Chicago Regional Office. "To make matters worse, he then used his association with CalPERS to lure other public institutional investors under false pretenses."

According to the SEC's order instituting settled administrative proceedings against Tandon, he represented to CalPERS in May 2008 that Simran met explicit AUM requirements and managed at least $200 million as of Dec. 31, 2007. In fact, Simran managed approximately $80 million at that time. Evidence indicates that Tandon was aware that Simran did not meet the CalPERS requirements for AUM.

According to the SEC's order, Tandon touted Simran's relationship with CalPERS to other prospective clients from 2008 to 2011, and he instructed other Simran employees to do the same. On more than a dozen occasions, Tandon and Simran employees falsely inflated the firm's AUM in communications with employee retirement systems and other prospective clients. Tandon and Simran also overstated the AUM in at least four of the firm's Form ADVs filed with the SEC. In February 2012, Simran withdrew its SEC registration as an investment adviser and has since ceased operations.

According to the SEC's order, Tandon violated Sections 206(1), 206(2), and 207 of the Investment Advisers Act of 1940. Tandon neither admitted nor denied the findings, and agreed to be barred from the securities industry and pay disgorgement of $20,018, prejudgment interest of $1,680, and a penalty of $100,000.

The SEC's investigation was conducted by Peter K.M. Chan along with Jonathan I. Katz and Andrew O'Brien in the Chicago Regional Office. They were assisted by members of the Chicago Regional Office's examination staff including Susan M. Weis, Jeson G. Patel, and Max J. Gillman.