New York Securities Lawyer Blog
On December 15, 2015, the Securities and Exchange Commission (“SEC”) filed a Complaint and Jury Demand (the “Complaint”), alleging fraud charges against Atlantic Asset Management LLC (“AAM”), an investment advisory firm in Stamford, Connecticut, which is believed to have invested more than $43 million of its clients’ funds into bonds with secret financial connections to BFG Socially Responsible Investments Ltd. (“BFG”), an undisclosed owner of AAM.
AAM is a Virginia corporation that is headquartered in Stamford, Connecticut, with offices in Alexandria, Virginia, and is a wholly-owned subsidiary of GMT Duncan LLC (“GMT”). AAM was initially registered with the SEC in 1993 under Hughes Capital Management, LLC (“Hughes”), which GMT acquired in July of 2014, and is owned and controlled by GMT’s two officers (the “Owning Officers”) and BFG, and undisclosed owner. The Owning Officers also hold all of GMT’s Class A interests and BFG holds all of GMT’s Class B interests. When GMT purchased Hughes, the Form ADV filed with the SEC indicated the Owning Officers’ partial ownership of GMT, but failed to disclose BFG’s partial ownership. On April 2, 2015, GMT merged Hughes with AAM, keeping the latter’s name for the newly-formed entity, and GMT itself began doing business under the name Atlantic Capital Holdings LLC. In the new Form ADV filed with the SEC, which reflected the merger, BFG was again omitted as a partial owner of GMT.
The Complaint alleges that after GMT’s acquisition of Hughes in 2014, representatives of BFG proposed that Hughes’ clients invest in certain “dubious, illiquid bonds issued by a Native American tribal corporation” (the “Tribal bonds”), with the proceeds of the issuance “to be used primarily to purchase an annuity that would be provided and managed by BFG’s parent company, the Annuity Provider.” The Complaint alleges that one of the Owning Officers “knew, or was reckless in not knowing … that fees would be owed to the Annuity Provider for the provision and administration of the annuity” in the amount of $0.006 per $1.00 per annum on the full amount used to buy the annuity (approximately $260,000 per year), as well as to a Placement Agent (who received $250,000), both of whom have affiliations with BFG. In bringing these allegations, the Complaint points to that officer’s repeated demonstrations of reluctance in executing the deal. In addition to expressing reservations to superiors, he or she had one of Hughes’ compliance officers perform an analysis of “whether the clients’ investment guidelines allowed for purchase of the bonds,” and the compliance officer concluded that “most of the clients would not accept the purchase, and that in no case could the investment be made without consulting the client first.”
Ultimately, AAM invested $27,077,436 of Hughes’ clients’ funds in Tribal bonds between August 22 – 26, 2014, and $16.2 million on April 16, 2015, without disclosing the investment to any of the clients or the revenue it would generate for BFG. Even after the clients’ requests that the investments be unwound, AAM has yet to return the funds. The SEC alleges that AAM violated Sections 206(1), 206(2), 206(4), and 207 of the Investment Advisers Acts of 1940 (the “Advisers Act”), 15 U.S.C. §§ 80b-6(1), (2) and (4) and 80b-7, and Rule 206(4)-8 thereunder, and 17 C.F.R. § 275.206(4)-(8), and the Complaint states “[u]nless AAM is preliminar[il]y and permanently restrained and enjoined, it will continue to engage in the acts, practices and courses of businesses set forth in this Complaint and in acts, practices and course of business of similar type and object.”
The attorneys at Lax & Neville LLP have extensive experience in successfully prosecuting claims on behalf of customers who have suffered losses or been defrauded. If you are a victim of fraud, please contact Lax & Neville LLP today at (212) 696-1999 to schedule a consultation.