Alaska-Based Adviser Charged with Failing to Disclose Conflicts of Interest
July 24, 2019
File No. 3-19266
July 24, 2019 – The Securities and Exchange Commission today announced that Foundations Asset Management, LLC (“FAM”), an Anchorage, Alaska-based investment adviser, along with its principals Michael Shamburger and Rob Wedel, agreed to settle charges that they failed to disclose conflicts of interest related to compensation FAM received.
The SEC’s order finds that from May 2013 to June 2016, FAM breached its fiduciary duty to its retail clients by failing to disclose conflicts of interest FAM had in recommending investments in the private real estate fund Alaska Financial Company III LLC (“AFC III”). As detailed in the order, during this period, AFC III and its manager paid FAM approximately $254,000, in both up-front payments and annual trailing fees, in exchange for FAM recommending investments in the fund. FAM ultimately recommended its clients put approximately $12 million in AFC III. The order finds that FAM, Shamburger, and Wedel failed on multiple occasions to adequately disclose to clients the conflicts of interest presented by FAM’s AFC III compensation, including that FAM earned significantly more money by recommending AFC III investments as compared to other investments. The SEC’s order further finds that FAM failed to register as a broker and made materially false statements regarding its compensation in SEC filings.
The SEC’s order finds that FAM willfully violated the broker-dealer registration provision of Section 15(a) of the Securities Exchange Act of 1934 and the antifraud provisions of Sections 206(2) and 207 of the Investment Advisers Act of 1940, that Shamburger caused FAM’s violations of Section 15(a) of the Exchange Act and Sections 206(2) and 207 of the Advisers Act, and that Wedel caused FAM’s violations of Section 15(a) of the Exchange Act and Section 206(2) of the Advisers Act.
Without admitting or denying the findings, FAM agreed to pay disgorgement and prejudgment interest of $278,947 and an $85,000 penalty, while Shamburger and Wedel agreed to pay $50,000 and $25,000 penalties, respectively. The SEC’s order also includes cease-and-desist orders against FAM, Shamburger, and Wedel; a censure against FAM; and a voluntary undertaking by FAM to relinquish its right to receive further trailing fees related to AFC III investments. AFC III and its manager were the subject of a 2018 SEC enforcement action alleging fraud.
The SEC’s investigation was conducted by John P. Mogg and Crystal Boodoo and supervised by Steven Buchholz and Erin Schneider of the San Francisco Regional Office. An examination of FAM contributed to the investigation and was conducted by Cindy Cooper, Benjamin Yu, Erica Gould, and Alice Schulman of the San Francisco Regional Office.