SEC Sanctions Two Investment Advisers for Impeding Examinations
The Securities and Exchange Commission today sanctioned two investment advisory firms for impeding examinations conducted by SEC staff.
An SEC investigation found that Evens Barthelemy and his New York-based firm Barthelemy Group LLC misled SEC examiners by inflating the firm’s claimed assets under management (AUM) ten-fold in an apparent attempt to show that the firm was eligible for SEC registration. Another SEC investigation found that Seth Richard Freeman and his San Francisco-area firm EM Capital delayed nearly 18 months in producing books and records related to the firm’s mutual fund advisory business.
Both firms agreed to settle the SEC’s charges against them.
“Barthelemy was not truthful and Freeman was not responsive during their respective interactions with SEC examiners,” said Bruce Karpati, Chief of the SEC Enforcement Division’s Asset Management Unit. “We will continue to pursue enforcement actions against firms that obstruct or delay the SEC’s critical work in overseeing investment advisers.”
Carlo di Florio, Director of the SEC’s Office of Compliance Inspections and Examinations, added, “Examinations of SEC-registered firms play a vital role in protecting markets and investors, and we expect their candor and prompt cooperation as SEC staff works to promote compliance, monitor risk, and prevent fraud.”
According to the SEC’s order against Barthelemy and his firm, when examiners asked for a list of client assets, Barthelemy misrepresented his firm’s AUM as $26.28 million instead of the actual $2.628 million. He downloaded client account balances from the firm’s online custodial platform onto a spreadsheet, and then manually moved the decimal points for each client one place to the right before providing it to the SEC staff. From July 2009 to early 2011, Barthelemy improperly registered Barthelemy Group with the SEC on the basis of the aspirational AUM that was 10 times higher than reality. Barthelemy Group, through Barthelemy’s actions as chief compliance officer, also failed to adopt reasonable compliance policies and procedures or to maintain required books and records concerning codes of ethics and providing the firm’s disclosure brochure to clients.
Barthelemy agreed to be barred from the securities industry and from associating with an investment company, with the right to reapply after two years. Without admitting or denying the allegations, Barthelemy and his firm consented to cease-and-desist orders, and the firm was censured. Barthelemy and his firm also will provide a copy of the proceeding to their clients and appropriate state securities regulators, will post a copy on the firm’s website, and will disclose the proceeding in an amended SEC Form ADV filing.
According to the SEC’s order issued today against Freeman and his firm, they failed to immediately furnish the required books and records upon request by SEC staff in December 2010. EM Capital and Freeman repeatedly promised to provide the records including financial statements, e-mails, and documents related to their management of a mutual fund. However, they did not fully comply until September 2012, months after learning that SEC staff was considering enforcement action against them.
Freeman and EM Capital agreed to pay a combined $20,000 penalty. Without admitting or denying the SEC’s findings, Freeman and EM Capital also agreed to censures and cease-and-desist orders.
The SEC’s investigation of Barthelemy Group was conducted by David Neuman and Scott Weisman of the SEC’s Asset Management Unit. The examination of Barthelemy Group was conducted by Dawn Blankenship, Kristine Geissler, Arjuman Sultana, Margaret Pottanat, and Anthony Fiduccia of the New York Regional Office’s investment adviser/investment company examination program. The SEC’s investigation of EM Capital was conducted by Sahil W. Desai and Erin E. Schneider of the San Francisco Regional Office, who are members of the SEC’s Asset Management Unit. The examination of EM Capital was conducted by Tom Dutton, Ada Chee, and Ed Haddad of the San Francisco Regional Office’s investment adviser/investment company examination program.