Podcast Center
Video Center
Webcasts
Resource Center
Events
February 04, 2015 at 10:58 AM
The Securities and Exchange Commission recently issued cease-and-desist orders against three advisors for misrepresenting their principal place of business in order to maintain their SEC registration.
Firms based in Wyoming must register with the SEC because the state does not regulate investment advisors. According to the orders issued on Wednesday, the firms willfully misrepresented their places of business on their Forms ADV. The three firms are New Line Capital, Wyoming Investment Management Services and Arete Ltd.
New Line Capital is based in Santa Fe, New Mexico, but the firm’s owner and chief compliance officer, David Nagler, reorganized his company as a Wyoming limited liability company and filed an amended Form ADV in March 2012. Despite continuing to live and work in New Mexico, Nagler continued to claim Wyoming as his main place of business on Forms ADV from April 2013, February 2014 and March 2014.
The SEC’s order claims Nagler went so far as to rent a small office space in Wyoming, but “rarely” used it and “never met clients in Wyoming.”
Nagler also misrepresented New Line’s assets under management by including assets that were not securities portfolios, like real estate and operating enterprises, and portfolios that he didn’t provide regular and continuous supervision for, according to the order. “Although New Line did not charge advisory fees on these assets, by including these assets, New Line materially misrepresented its AUM,” the SEC wrote.
The SEC further claims that New Line’s financial and trading records were inadequate.
The SEC claims Nagler was solely responsible for preparing and filing the firm’s Forms ADV, calculating assets under management and maintaining books and records. As a result of his actions, “New Line willfully violated, and Nagler willfully aided and abetted and caused New Line’s violations of” Sections 203A, which outlines which authority an advisor must register with; 207, which make it illegal to make material misstatements on any application or report filed with the SEC; and 204(a), which requires advisors to “make and keep” certain records.
In addition to the cease and desist, Nagel must pay $25,000 within 10 days of the order.
In the case of Wyoming Investment Management Services and its president and sole employee, Craig Scariot, the SEC claims that in December 2012, Scariot formed WIMS as a Wyoming limited liability company, and rented an office and opened a bank account for the firm in Cheyenne. He filed an initial Form ADV the following February, naming Cheyenne as the firm’s principal place of business.
However, Scariot lived and worked in Fort Collins, Colorado, while he was “completing graduate school and undergoing intensive physical therapy,” according to the SEC. He did not meet with clients in Cheyenne and conducted business in the Wyoming office on an “infrequent basis.”
Furthermore, books and records were maintained in Santa Fe, New Mexico, according to the SEC’s cease and desist order.
The SEC is charging WIMS and Scariot with violating Sections 203A and 207 of the Advisers Act.
