Right about now, a whole bunch of people should be sweating buckets.
Washington, D.C., Sept. 24, 2008 – The Securities and Exchange Commission today charged a San Luis Obispo, Calif.-based investment adviser and its owner with fraud for failing to disclose a material conflict of interest when recommending that their clients invest in a hedge fund...
The SEC alleges that WealthWise LLC and its principal Jeffrey A. Forrest recommended that more than 60 of their clients invest approximately $40 million in Apex Equity Options Fund, a hedge fund managed by Salt Lake City-based Thompson Consulting, Inc. [TCI]...WealthWise and Forrest failed to disclose a side agreement in which WealthWise received a portion of the performance fee that Apex paid TCI for all WealthWise assets invested in the hedge fund. From April 2005 to September 2007, WealthWise received more than $350,000 in performance fees from TCI. Apex collapsed in August 2007, and WealthWise clients lost nearly all of the money they invested.
Today’s action demonstrates that investment advisers will be called to account when, as we allege here, they receive undisclosed kickbacks for putting their clients into investments,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement. “We will aggressively pursue advisers who seek to line their pockets at the expense of their clients.” [Emphasis added]
Investment advisors, or similar, taking undisclosed fee-splits from hedge funds in which they invest client assets? Or multiple similar variations on the fee-sharing theme, all featuring the word “undisclosed”? While not generally in the business of making predictions, NakedShorts predicts a tornado of revised disclosure memoranda.
SEC Charges California Investment Adviser With Fraud
US Securities and Exchange Commission
Press release Sep. 24 2008
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