ADV crackdown on, as SEC says firm claimed $200M in AUM, had $3M
Commission on a mission, goes after Chicago firm for allegedly 'grossly exaggerating' assets under management
A Chicago investment adviser and its principal lured investors into two funds of hedge funds the firm managed by “grossly exaggerating” the firm’s assets under management and making other false and misleading statements, the Securities and Exchange Commission charges.
According to an administrative complaint filed by the SEC’s enforcement division, Calhoun Asset Management LLC and Krista Lynn Ward told one asset management firm — which later had 20 of its clients invest in the Calhoun funds — that Calhoun had grown from $27 million in assets under management in 1999 to $200 million in 2006. The firm actually had at most $3 million under management at that time, the SEC said.
Ms. Ward also filed numerous false Form ADVs for Calhoun, including one in February 2009 that said the firm had $79.8 million in assets under management, when it really had $7 million, the SEC said. She also misrepresented the assets of another Chicago investment adviser where she was the chief executive, suggesting that firm had $300 million under management, when it never managed any assets, according to the complaint filed on Thursday.
The case comes as the commission has said it is waging a campaign to weed out investment advisers who provide inaccurate information on the adviser registration forms they are required to file and update with the commission.
The SEC is digging for inaccuracies on the ADV forms that may signal a firm’s willingness to falsely report important information used by investors, Robert Khuzami, the SEC’s enforcement director, said last month.
“We believe it’s important to take action when an adviser is inflating assets under management in an attempt to attain clients,” said John Sikora, assistant director of the Chicago regional office.
The enforcement division is seeking a cease-and-desist order against the firm and Ms. Ward and possible fines and restitution for investors.
John Muldoon, an attorney for Ms. Ward and Calhoun, did not immediately return a call seeking comment.
Ms. Ward launched the two funds of funds in 2006, seeking returns through the selection of investment managers across a pool of strategies, the SEC said. She marketed herself as an experienced hedge fund manager, “despite having no experience in portfolio management,” the SEC complaint said.
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