The Securities and Exchange Commission on Wednesday charged a San Francisco-area investment advisor with fraud for lying to clients about how brokerage commission rebates, or “soft dollars,” were being used and producing phony documents to cover up the fraud during an SEC examination.
The SEC alleges that Kurt Hovan of Hovan Capital Management misappropriated more than $178,000 he claimed to be using to pay for legitimate investment research on his clients’ behalf. In reality, the SEC says Hovan was secretly funneling the money for such undisclosed uses as office rent, computer hardware and his brother’s salary.
When SEC examination staff asked Hovan to provide documentation to back up his claims, the SEC says he created phony research reports.
The SEC also charged his wife, Lisa Hovan, and his brother Edward Hovan for their roles in the fraudulent scheme. The U.S. Attorney’s Office for the Northern District of California filed criminal charges against Kurt Hovan on Wednesday as well.
“The SEC’s ability to review the records of investment professionals is a cornerstone of our investor protection mission,” said Marc Fagel, director of the SEC’s San Francisco Regional Office, in a statement. “We take a particularly dim view of those who compound their fraud on investors by providing false information to our examiners.”