More On Legal & Compliancefrom The Advisor's Professional Library
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
In what appears to be the first case of fraud involving the Troubled Asset Relief Program (TARP), the Securities and Exchange Commission has charged Nashville-based investment advisor Gordon Grigg and his firm ProTrust Management, Inc., with securities fraud, and obtained a court order freezing their assets. The SEC alleges that Grigg and ProTrust defrauded clients out of at least $6.5 million and misrepresented that their money was invested in the federal government's TARP program and other securities that, in reality, do not exist.
Here's what the SEC's complaint says: Grigg is a self-purported financial planner and investment advisor, but neither he nor his firm is registered with the SEC or a state regulator. The SEC alleges that Grigg obtained control over funds of at least 27 clients since 2007 and falsely claimed to have invested their money in securities described as "Private Placements." Grigg created fraudulent account statements reflecting his clients' ownership of these non-existent securities, according to the SEC. The SEC further alleges that Grigg began falsely claiming in December that ProTrust had the ability to invest client funds in government-guaranteed commercial paper and bank debt as part of the TARP program. Grigg also falsely claimed to have partnerships and other business relationships with several of the nation's top investment firms, the SEC says.
"As alleged in our complaint, Grigg and ProTrust preyed upon investors' desire for safety by claiming associations with reputable investment firms and the government's TARP program," said Katherine Addleman, Regional Director of the SEC's Atlanta Regional Office, in a statement. "Investors should carefully check any purported affiliations. In this case, not only were such claims false, but there is in fact no program in which investors can buy debt guaranteed by the TARP program."