SEC Charges San Francisco Bay Area Investment Adviser for Misleading Investors and Failing to Disclose Conflicts
Sept. 4, 2019
File No. 3-19413
September 4, 2019 - The Securities and Exchange Commission today announced that Mitchell J. Friedman, a principal of Corte Madera, Calif.-based investment advisory firm Sharpe 4 Capital LLC, agreed to settle charges that he failed to disclose material conflicts of interest arising from compensation he received from an investment that he recommended. Friedman also misled two investors who unknowingly purchased Friedman's own interest in that same investment.
According to the SEC's Order, Friedman failed to disclose that he entered into an agreement with a private fund that invested in foreclosed properties ("Foreclosure Fund"), pursuant to which Friedman was entitled to compensation based on the amount of investments he introduced to the Foreclosure Fund. Sharpe 4 Partners, L.P., a private fund advised by Friedman through his firm Sharpe 4 Capital, ultimately became the Foreclosure Fund's largest investor. From February 2013 to February 2014, Friedman received $54,464 in payments pursuant to the agreement.
Additionally, the Order finds that Friedman misled two individuals who invested $300,000 in the Foreclosure Fund in January 2014. Friedman initially told these investors that they were purchasing the interest of a young investor who was withdrawing to buy a home. Instead, Friedman directed that the $300,000 be used to purchase a portion of Friedman's own investment in the Foreclosure Fund. In September 2014, the Foreclosure Fund announced that it would wind down due to low returns resulting from poor performance and a corresponding rise in redemption requests.
The SEC's Order found that Friedman violated the antifraud provisions of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Without admitting or denying the SEC's findings, Friedman consented to a cease-and-desist order, and agreed to pay disgorgement and prejudgment interest of $86,335 and a civil penalty of $94,713. Friedman also consented to the entry of an associational bar and investment company bar, with the right to reapply after one year.
The SEC's investigation was conducted by Serafima K. McTigue and Ellen Chen of the San Francisco Regional Office and supervised by Monique C. Winkler and Erin E. Schneider. An examination of Sharpe 4 Capital led to the investigation and was conducted by Karah P. To, Ada C. Chee, Matthew M. O'Toole, and Edward G. Haddad.