The SEC Tuesday sanctioned two investment advisory firms for impeding examinations conducted by SEC staff, with one RIA firm charged with “aspirational AUM,” for inflating its AUM tenfold, from $2.6 million to $26 million, to qualify for SEC registration.
The two firms settled with the SEC without admitting or denying the findings.
In the case of the “aspirational AUM,” in the SEC’s own words, an SEC investigation found that Evens Barthelemy and his New York-based firm Barthelemy Group LLC misled SEC examiners by inflating the firm’s claimed assets under management tenfold on its Form ADV in an apparent attempt to show that the firm was eligible for SEC registration. It did so, the complaint charges, by literally moving decimal points on a spreadsheet to increase each client’s assets tenfold.
In the second case, an SEC investigation found that Seth Richard Freeman and his San Francisco-area firm EM Capital delayed for nearly 18 months in producing books and records related to its Indian equity mutual fund advisory business. The firm agreed to pay a $20,000 fine in settling the case.
“Barthelemy was not truthful and Freeman was not responsive during their respective interactions with SEC examiners,” said Bruce Karpati, chief of the SEC Enforcement Division’s Asset Management Unit. “We will continue to pursue enforcement actions against firms that obstruct or delay the SEC’s critical work in overseeing investment advisers.”
Carlo di Florio (right), director of the SEC’s Office of Compliance Inspections and Examinations (OCIE), added, “Examinations of SEC-registered firms play a vital role in protecting markets and investors, and we expect their candor and prompt cooperation as SEC staff works to promote compliance, monitor risk, and prevent fraud.”
Case One: Aspirational AUM; Moveable Decimal Points
According to the SEC’s order against Barthelemy and his firm, when examiners asked for a list of client assets, “Barthelemy misrepresented his firm’s AUM as $26.28 million instead of the actual $2.628 million. He downloaded client account balances from the firm’s online custodial platform onto a spreadsheet, and then manually moved the decimal points for each client one place to the right before providing it to the SEC staff.”
From July 2009 to early 2011, “Barthelemy improperly registered Barthelemy Group with the SEC on the basis of the aspirational AUM that was 10 times higher than reality. Barthelemy Group, through Barthelemy’s actions as chief compliance officer, also failed to adopt reasonable compliance policies and procedures or to maintain required books and records concerning codes of ethics and providing the firm’s disclosure brochure to clients,” the SEC says.