SEC Charges Colorado-Based Investment Adviser With Fraudulently Recommending Hedge Funds to Older Investors
FOR IMMEDIATE RELEASE
“Greenberg's unsuitable recommendations and misrepresentations deceived his advisory clients into believing their money was safe with him.”
Donald M. Hoerl
Director, SEC Denver Regional Office
Washington, D.C., Sept. 7, 2010 — The Securities and Exchange Commission today charged Boulder, Colo.-based investment adviser Neal R. Greenberg with fraud and breach of fiduciary duty in the marketing and recommendation of his firm's hedge funds to investors, including many elderly clients.
The SEC's Division of Enforcement alleges that Greenberg falsely stated that the Agile hedge funds offered and managed by his two investment advisory firms were suitable for conservative investors who were retired or nearing retirement. However, the Agile hedge funds used leverage and concentrated in a small number of investments. The funds suffered substantial losses in September 2008 and ceased redemptions to investors. The SEC Division of Enforcement further alleges that the Agile hedge funds improperly collected approximately $2 million in management and performance fees that were not adequately disclosed to investors.
"Greenberg misrepresented the diversification, risks and fees involved with investing in the Agile hedge funds to conservative investors who were dependent upon their investment income for some or all of their living expenses," said Donald M. Hoerl, Director of the SEC's Denver Regional Office. "Greenberg's unsuitable recommendations and misrepresentations deceived his advisory clients into believing their money was safe with him."
According to the SEC's order instituting administrative and cease-and-desist proceedings against Greenberg, the Agile hedge funds held approximately $174 million of capital from more than 100 investors when Greenberg suspended redemptions in September 2008. Greenberg was the CEO of his investment advisory firm Tactical Allocation Services LLC that made investment recommendations to clients, and the head portfolio manager for his other investment advisory firm Agile Group LLC, which managed the Agile hedge funds.
The SEC's Division of Enforcement alleges that Greenberg falsely stated that the Agile hedge funds offered liquidity, immense diversification and minimal risk. He also falsely stated that the hedge funds could safely represent an investor's entire investment portfolio, and that they used leverage in a way that did not significantly increase the risk profile of the funds. The risk disclosures in private placement memoranda for the Agile hedge funds for 2007 and 2008 contradicted Greenberg's false and misleading verbal and written representations to investors.
According to the SEC's order, the majority of Greenberg's advisory clients were generally conservative, older investors who wanted low-risk investments offering significant capital protection. The Division of Enforcement alleges that Greenberg failed to ensure that adequate compliance policies and procedures were developed or implemented for determining when it would be suitable for advisory clients to invest in complex hedge fund products, particularly for unsophisticated investors or elderly clients on limited incomes who were risk-averse. Greenberg also failed to ensure that adequate supervisory procedures were developed or implemented relating to those determinations.
With regard to fees, the SEC's order notes that when one Agile hedge fund invested in another Agile hedge fund, investors were assessed performance and management fees on the leveraged portion of their investment. These fees, which totaled approximately $2 million between 2003 and 2006, were not disclosed to investors.
John Mulhern and Jay Scoggins of the SEC's Denver Regional Office conducted the SEC's investigation. The SEC's litigation will be led by Stephen McKenna. This investigation was based upon a referral from the Denver Regional Office examination staff.
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For more information about this enforcement action, contact:
Donald M. Hoerl
Regional Director, SEC's Denver Regional Office
Julie K. Lutz
Associate Regional Director, SEC's Denver Regional Office