A New York investment adviser settled SEC charges for concealing losses and selling fake loan assets to clients.
According to the Complaint filed in the U.S. District Court for the Southern District of New York, the investment adviser defrauded clients by:
- hiding losses through (i) inflating the value of certain defaulted trade finance loans, and (ii) replacing defaulted loans with fake loans; and
- selling those overvalued and/or fake trade finance loans to clients.
The SEC alleged that the illicit conduct began in 2007, and resulted in the sale of over $60 million worth of fake loan assets to clients.
To settle the charges, the investment adviser agreed to a bifurcated settlement that permanently enjoins it from future related violations. Additionally, the SEC revoked the investment adviser's registration.
Commentary
It is difficult to see any consistent theme as to when the DOJ becomes involved in violations committed by regulated entities. On the one hand, DOJ brings criminal cases against traders for spoofing activity. The improper activity in such cases often falls in a gray area where it is not always obvious which types of trading are permissible and which are not. See, e.g., DOJ and CFTC Charge Metals Traders with Spoofing and Racketeering. On the other hand, this case reflects what is, essentially, an outright theft. There seems to be no real ambiguity about it. It involves a lot of money and the victims were owed a fiduciary duty - yet there is no mention of the DOJ. What is the logic on when the DOJ gets involved and when it does not?
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