California Investment Adviser Settles Charges of Misleading Investors About Mutual Fund Performance
June 3, 2022
File No. 3-20876
Jun. 3, 2022 - The Securities and Exchange Commission announced today that Garrison Point Capital, LLC ("Garrison Point"), a registered investment adviser based in Walnut Creek, California, agreed to pay $3.5 million to settle charges that it misled investors about the performance of the mutual fund it advised, the AlphaCentric Income Opportunities Fund (the "Fund"), and caused the overvaluation of certain securities held by the Fund.
According to the order, Garrison Point caused the Fund to overstate its daily net asset value and made misleading disclosures about the Fund's performance by misvaluing small "odd-lot" bonds it purchased for the Fund. From May 2015 through July 2015, according to the order, Garrison Point purchased odd-lot bonds for the Fund and the Fund valued those positions at higher prices intended for larger, round-lot positions bought by institutional investors. The order finds Garrison Point provided inaccurate information regarding the sources of the Fund's performance to investors and had compliance failures related to odd-lot valuations and performance reporting. In addition, the order finds that, from January 2017 to February 2019, Garrison Point failed to implement its compliance policies concerning valuing Fund securities when it placed bids on bonds the fund already owned at prices higher than those quoted by the Fund's independent pricing service for the purpose of causing the pricing service to raise its reference prices for those bonds. The Fund then valued those bonds at the higher prices provided by the pricing service.
The SEC's order finds that Garrison Point willfully violated Section 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-7 and 206(4)-8 thereunder and Section 34(b) of the Investment Company Act of 1940, and that Garrison Point caused the Fund to violate Rule 22c-1 thereunder. Without admitting or denying the findings in the order, Garrison Point agreed to a cease-and-desist order, a censure, and pay a $3.5 million penalty.
The SEC's investigation was conducted by Ariana Torchin and Rahul Kolhatkar and supervised by Jeremy Pendrey, all of the Enforcement Division's Asset Management Unit in the San Francisco Regional Office. Brian Fitzpatrick and John Farinacci, Asset Management Unit industry specialists, and Judy Tran and Stephen Graham, of the Division of Economic and Risk Analysis, assisted with the investigation.