SEC Charges Beverly Hills Investment Adviser for Improper Fees and False Filings
July 20, 2018
File No. 3-18607
July 20, 2018 – The Securities and Exchange Commission today announced that investment adviser Beverly Hills Wealth Management, LLC (BHWM), and its majority owner Margaret Mulligan Black, agreed to settle charges that they improperly refused to refund unearned advisory fees to 63 departing advisory clients and made material misstatements in written disclosures to clients concerning BHWM’s financial condition.
According to the SEC’s order instituting administrative and cease-and-desist proceedings, in April 2016, BHWM and Black withheld $131,000 in prepaid unearned advisory fees from 63 departing clients who requested, via e-mail, that BHWM terminate their relationship. BHWM and Black initially refused to recognize the requests as a proper termination notice.
Instead, they demanded “wet signatures” on the requests even though the firm’s policies and written disclosures permitted clients to terminate their relationship with the firm via email. The order also finds that BHWM and Black omitted material facts and made false and misleading statements related to BHWM’s financial condition in reports given to clients. Specifically, BHWM failed to disclose that it was insolvent during the relevant period, when it had taken out loans totaling $700,000 just to keep the business afloat. BHWM is currently in default on the loans. The firm also had a negative net worth that continued to worsen during the relevant period.
The SEC’s order found that BHWM willfully violated Sections 204(a), 206(2), 206(4), and 207 of the Advisers Act, and Rules 204-1(a)(2) and 206(4)-7 thereunder, and that Black willfully violated Sections 206(2) and 207 of the Advisers Act, and willfully aided and abetted and caused BHWM’s violations of Sections 204(a) and 206(4) of the Advisers Act and Rules 204-1(a)(2) and 206(4)-7 thereunder. Without admitting or denying the SEC’s findings, BHWM and Black consented to cease-and-desist orders, censures, and civil penalties of $100,000 and $50,000, respectively. BHWM has also undertaken to correct its disclosure in its Form ADV, Part 2A.
The SEC’s investigation was conducted by David Rosen and supervised by Marc Blau of the Los Angeles Regional Office. The SEC examination that led to the investigation was conducted by Jennifer Kim, Shawn McEnnis and Sang Lee.