SEC Charges Third and Fourth Investment Advisers for Undisclosed Conflicts of Interest Related to Aequitas Enterprise
Feb. 27, 2020
File No. 3-19715 and 3-19716
February 27, 2020 - The Securities and Exchange Commission today charged New Jersey and California-based investment advisers with failing to adequately disclose conflicts of interest related to their clients' investments in the Oregon-based Aequitas enterprise. To settle these charges, the investment advisers have agreed to pay a total of $564,000, which will be used to fund a distribution to harmed investors.
The SEC previously charged Aequitas Management LLC and three of its top executives with fraudulently raising more than $350 million from approximately 1,500 investors. The SEC also previously charged investment advisers in Massachusetts and Washington for failing to disclose their Aequitas-related conflicts of interest to advisory clients.
In two separate orders issued today, the SEC found that from 2013 to 2015, Jeffrey C. Sica, of Morristown, New Jersey and William M. Malloy, III, of La Jolla, California, and the investment adviser firms that they each controlled, steered advisory clients to invest in Aequitas securities at the same time that Aequitas was compensating the firms through loans or for consulting services that included introducing investors to Aequitas.
According to the order against Sica and his firm, Sica Wealth Management, LLC (SWM), Sica's firm received approximately $2 million from Aequitas pursuant to consulting and loan agreements, but Sica and SWM failed to adequately disclose the agreements and payments to their advisory clients who invested in Aequitas securities. According to the order against Malloy and his firm Fortress Investment Management, LLC, Fortress received monthly $15,000 payments from Aequitas, but Malloy failed to adequately disclose the payments to advisory clients who invested in a Fortress fund that invested heavily in Aequitas securities. Malloy also inaccurately claimed that another investment adviser he controlled had the $100 million in assets under management required for SEC registration, causing it to remain improperly registered.
Without admitting or denying the SEC's findings, Sica and SWM consented to an order finding that they failed to disclose conflicts of interest in violation of Section 206(2) of the Investment Advisers Act of 1940. Also without admitting or denying the SEC's findings, Malloy and Fortress consented to an order finding that Malloy violated Section 206(2) and aided and abetted and caused a violation of Section 203A of the Advisers Act, and that Fortress was a cause of Malloy's Section 206(2) violations. The order also suspends Malloy from the industry for twelve months. Sica, Malloy, and their related entities have agreed to pay approximately $564,000 to resolve the SEC's charges, including disgorgement of the advisory fees they charged during the time of their violations, which will be used to fund a distribution to harmed investors.
The SEC's investigations were conducted by Tracy S. Combs and Thomas J. Eme of the San Francisco Regional Office and supervised by Steven Buchholz. SEC examinations contributed to the investigations and were conducted by Joseph P. DiMaria, Sheryl Marcus, James Anastasia, and Tracy O'Sullivan of the New York Regional Office and Melissa Romic, Brian Krechman, Dara Campbell, and Daniel Jung of the Los Angeles Regional Office.