The Securities and Exchange Commission has barred the founder of Danville, Calif.-based Valentine Capital Asset Management after failing to disclose financial conflicts of interests to clients invested in a commodities fund.
John Leo Valentine, president and owner of Valentine Capital Asset Management, recommended clients buy and hold shares of Bridgeton Global Directional Fund, a managed futures fund that invested in commodity futures contracts, from 2007 to late 2011, according to
an SEC document Thursday. After losing his ability to earn commissions from Bridgeton, he began advising his clients to invest instead in a commodities fund called Valt, which he created and would receive compensation from.
Mr. Valentine “failed to disclose that he had a financial incentive to make the recommendation because he could earn money from Valt, but not Bridgeton,” the SEC said in the document.
As of mid-April 2011, Valentine Capital's clients, who were primarily retired employees of a large oil and gas producer in northern California, had about $35 million invested in Bridgeton, making it the second-largest investment position held by the firm's customers based on dollar amount, according to the SEC. Mr. Valentine had received about $1 million a year in commissions from the fund between 2010 and 2011, according to the SEC.
Then, in November 2011, the affiliated broker-dealer through which
Mr. Valentine received all Bridgeton commissions, requested his resignation as a representative of the firm.
Mr. Valentine began forming Valt in late 2010 and throughout 2011 to invest in commodity futures, options on commodities and options on futures.
“After just a few months of operations, Valt ceased nearly all trading activity when its primary clearing broker and custodian declared bankruptcy in connection with a fraud conducted by the clearing broker's CEO,” the SEC said in the document.
As part of its decision to bar Mr. Valentine, the SEC said he misrepresented to clients why his firm, which last year had $367 million in assets, changed custodians. In 2010, his custodian terminated relations due to concerns about an earlier SEC administrative proceeding against Mr. Valentine and his firm. He claimed the switch was the result of a year-long independent review that would benefit clients, according to the regulator.
The SEC ordered Mr. Valentine to pay $140,000 in civil penalties, Thursday's document shows.
Efforts to reach Mr. Valentine for comment weren't immediately successful.
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