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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23334 / September 4, 2015

Accounting and Auditing Enforcement Release No. AAER-3688 / September 4, 2015

Securities and Exchange Commission v. Summit Asset Strategies Investment Management, LLC et al., Civil Action No. 2:15-cv-01429 (W.D. Wa.)

SEC Charges Seattle-Area Hedge Fund Adviser with Taking Unearned Management Fees

Two Accountants Charged With Performing Deficient Audit of Fund

The Securities and Exchange Commission today charged a Bellevue, Wash.-based investment advisory firm and its CEO with fraudulently inflating the values of investments in the portfolio of a private fund they advised so they could attain unearned management fees. The SEC also charged the fund's outside auditors with performing a deficient audit that enabled the firm to send misleading financial statements to investors.

Chris Yoo and his firm Summit Asset Strategies Investment Management agreed to pay more than $1 million to settle the fraud charges arising from Summit Stable Value Fund. Yoo and another of his advisory firms, Summit Asset Strategies Wealth Management agreed to pay over $180,000 to settle fraud charges related to his failure to inform clients that Summit Asset Strategies Wealth Management received significant fees when referring them to invest in the fund.

According to the SEC's complaint filed in U.S. District Court for the Western District of Washington:

  • Yoo and Summit Asset Strategies Investment Management were entitled to withdraw as compensation Summit Stable Value Fund's net profits, which were calculated by determining realized and unrealized gains and losses. They also were required to return any excess net profits to the fund as determined in an annual audit.
  • Beginning in 2011, Yoo directed the firm to withdraw purported fees that were based on fraudulently inflated investment values or were otherwise disproportionate from the fund's actual profits.
  • As part of the scheme, Yoo falsely claimed that the fund owned a specific bank asset that had appreciated to approximately $2 million in value. In reality, the fund owned an entirely different asset that was worth less than $200,000. As a result of Yoo's false claim, the fund's 2013 financial statements materially overstated the fund's investment values.
  • In total, Yoo and Summit Asset Strategies Investment Management withdrew nearly $900,000 in purported fees to which they were not entitled.

Without admitting or denying the allegations, Yoo and Summit Asset Strategies Investment Management agreed to the entry of an order (1) enjoining them from violations of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 ("Advisers Act") and Rule 206(4)-8(a) thereunder, with Yoo also agreeing to an injunction regarding violations of Section 207 of the Advisers Act; and (2) imposing disgorgement of $889,301 plus prejudgment interest of $104,632 and a penalty of $150,000, all on a joint and several basis. Without admitting or denying the allegations, Summit Asset Strategies Wealth Management agreed to the entry of an order (1) enjoining it from violations of Sections 206(1), 206(2), and 207 of the Advisers Act; and (2) imposing disgorgement of $81,729.14 plus prejudgment interest of $6,611.75 and a penalty of $100,000. Yoo also agreed to be barred from the securities industry.

According to the SEC's order instituting a settled administrative proceeding against the Summit Stable Value Fund's external auditors Raymon Holmdahl and Kanako Matsumoto:

  • They did not adhere to generally accepted auditing standards and performed a deficient audit of the fund's 2013 financial statements, which materially overstated the fund's valuation and ownership interest in certain assets.
  • Although the auditors recognized that Yoo's valuations posed a significant risk to the proper presentation of the fund's financial statements, they failed to obtain sufficient appropriate audit evidence with respect to the existence of certain fund assets. Therefore, they failed to discover that the fund did not own the assets claimed by Yoo.

Holmdahl and Matsumoto agreed to settle the charges without admitting or denying the findings by agreeing to be suspended for three years from practicing as an accountant on behalf of any publicly-traded company or other entity regulated by the SEC.

SEC Complaint

 

http://www.sec.gov/litigation/litreleases/2015/lr23334.htm


Modified: 09/04/2015