UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Investment Advisers Act of 1940
MPI INVESTMENT MANAGEMENT, DAVID PEQUET AND ASHOK SHENDE
The Commission announced the entry of an Order Instituting Proceedings against MPI Investment Management (MPI), David Pequet (Pequet) and Ashok Shende (Shende).
The Order alleges that in 1993 two partners decided to leave MPI which was, at the time, a partnership. However, MPI did not have funds available to satisfy the partnership interests of the departing partners. Accordingly, MPI entered into payment agreements with the former partners. By these agreements, MPI through the remaining partners, Pequet and Shende, agreed to pay them for their interests in MPI, in part, with $105,000 in directed commissions. In total, MPI directed over 100 trades of its clients to the former partners who received commissions for handling the trades. Between January 1994 and February 1996, MPI actually sent $73,043.89 in directed commissions to the two former partners.
The trades which MPI directed to the former partners came primarily from the account of one large institutional client of MPI. This client was unaware of the agreements which MPI had reached with its former partners. MPI benefited from these agreements in that it did not need to pay the former partners with cash, but instead, could simply direct trades to compensate them.
MPI did not disclose the arrangements with its former partners until August 1996. However, the large institutional client primarily used for generating commissions for the former partners, terminated its account with MPI in February of 1996, before any disclosure was made. Accordingly, MPI never disclosed the arrangements with its former partners to the client that was generating the directed commissions.
The Order alleges that the failure to disclose the existence and material terms of the payment agreements with the former partners willfully violated Sections 206(1), 206 (2) and 207 of the Investment Advisers Act of 1940. The Order also alleges that Pequet and Shende aided and abetted the violations by negotiating the agreements, by executing documents, by either purposefully or recklessly failing to disclose these arrangements and by actually making the payments to the former partners. The Order goes on to allege that Pequet and Shende personally benefited from the arrangements as every dollar paid to the former partners through directed trades was a dollar that did not have to paid in cash by the partnership.
A hearing will be held before an administrative law judge to determine whether the staff's allegations against MPI, David Pequet and Ashok Shende are true, and if so, what remedial sanctions are appropriate and in the public interest and whether they should be ordered to pay disgorgement and/or civil penalties.