SEC Charges Atlanta Fund Adviser and Its Principal for Fraudulently Overvaluing Assets
Litigation Release No. 24539 / July 18, 2019
U. S. Securities and Exchange Commission v. Paul Alar and West Mountain, LLC, Case 1:19-cv-03265-JPB (N.D. Ga. filed July 18, 2019)
The Securities and Exchange Commission today charged Paul Alar of Atlanta, Georgia, and his investment adviser firm, West Mountain, LLC, for fraudulently over valuing assets in two funds they managed, allowing them to collect significantly inflated fees.
The SEC's complaint alleges that, beginning in late 2016, West Mountain and Alar directed two funds that they managed to invest in subsidiaries of two privately held companies. According to the complaint, at the time of the investments, both companies had minimal revenues, very limited operations, and minimal numbers of employees. Nevertheless, Alar and West Mountain recorded in the financial records for their two funds a collective unrealized gain of $18.6 million based on those investments, thereby allowing them to collect approximately $900,000 of additional fees.
The complaint further alleges that, in valuing the unrealized gains, West Mountain and Alar falsely represented to investors that independent valuations by a third party supported their valuations, even though they knew that the third-party expressly stated it "should not be regarded as an independent valuation." In addition, West Mountain's auditors had advised that the valuation methodology used to calculate the unrealized gains was unreasonable and inappropriate. The SEC also alleges that, in 2017, West Mountain and Alar misrepresented that one of the companies was actively negotiating an anticipated agreement that would result in massive gains for investors. According to the complaint, however, these "active negotiations" never existed.
The SEC's complaint, filed in federal district court in Atlanta, Georgia, charges defendants with violating the antifraud provisions of Sections 206(1), (2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The SEC seeks permanent injunctions and monetary relief.
The SEC's investigation was conducted by Kyle Bradley and was supervised by Natalie Brunson of the Atlanta Regional Office and Complex Financial Instruments Unit and also supervised by Daniel Michael, Chief of the Complex Financial Instruments Unit. The litigation will be led by Pat Huddleston and Joshua Mayes, under the supervision of Graham Loomis.