SEC Continues to Focus on Conflicts By Advisers
Recently Julie M. Rieve, Co-chief, Asset Management delivered remarks titled Conflicts, Conflicts Everywhere to the IA Watch 17th Annual IA Watch Compliance Watch Conference (Feb. 26, 2015)(here). Conflicts are in fact the focus of many of the cases that have recently been brought involving investment advisers and other market professionals.
Ms. Rieve’s remarks might also have been seen as presaging the Commission’s most recent action involving an investment adviser, In the Matter of Edgar R. Page, Adm. Proc. File No. 3-1607 (March 10, 2015). There the Order names as Respondents Page One, a registered investment adviser, and its principal, Edgar Page, 95% owner, CEO and COO.
The Order centers on a late 2008 arrangement entered into by Mr. Page and a Fund Manager who managed a series of private investment funds. The two men entered into an agreement under which Fund Manager would acquire Page One for about $3 million. The payments would be made in installments over time. The agreement also stipulated that Mr. Page would refer Page One clients to the funds managed by Fund Manager. The acquisition would not close unless, and until, those clients had invested $20 million in the funds managed by Fund Manager.
Subsequently, the arrangement was modified. Under the new terms Fund Manager would only acquire 49% of Page One. While the purchase price was reduced, Mr. Page’s obligation to refer $20 million of business to the funds was not.
In preparing the Form ADVs for Page One – Mr. Page was the chief compliance officer – the deal to sell Page One was not disclosed. To the contrary, in the 2009 filing the firm told clients that it was not charging management fees because it was compensated by Fund Manager. That filing significantly understated the amount of that compensation. More importantly, it failed to disclose the arrangement under which Fund Manager would acquire the firm. Subsequently, amendments were made to the filings. The deal for Fund Manager to acquire Page One was not disclosed.
Eventually the deal collapsed. Mr. Page was unable to refer $20 million in business to the funds managed by Fund Manager. Likewise, Fund Manager did not comply with the purchase obligations.
The Order alleges violations of Advisers Act Sections 206(1), 206(2) and 207.
The Respondents partially resolved the proceeding. Each consented to the entry of a cease and desist order based on the Sections cited in the Order. Page One also consented to the entry of a censure. Further proceedings will he held to determine what monetary sanctions, if any, should be imposed.