The Securities and Exchange Commission announced fraud charges Thursday against an Atlanta-based advisory firm and its executives for steering public pension fund clients into an alternative investment fund offered by the firm despite the fact the investments did not comply with state law.
The SEC’s Enforcement Division alleges that Gray Financial Group, its founder and president, Laurence O. Gray, and its co-CEO Robert C. Hubbard IV breached their fiduciary duty by selling unsuitable investments to pension funds for the city’s police and firefighters, transit workers and other employees—and deliberately hiding the fact that the investments were unsuitable.
The SEC states that while Georgia law allows most public pension funds in the state to purchase alternative investment funds, the investments are subject to certain restrictions that Gray Financial Group’s fund allegedly failed to meet.
In an order instituting an administrative proceeding, the SEC’s Enforcement Division alleges that Gray Financial Group has collected more than $1.7 million in fees from the pension fund clients as a result of the improper investments.
“As alleged in our order, Gray Financial Group breached a fiduciary duty to public pension fund clients by recommending investments it knew did not comply with legal requirements,” said Andrew Ceresney, director of the SEC’s Division of Enforcement, in a statement. “To make matters worse, the firm profited handsomely from this alleged failure.”