SEC Fines Firm and Former Co-CEOs for Overstating AUM in Public Offering Materials
May 13, 2022
The SEC has fined a New York-based firm and its co-CEOs regarding AUM figures reported in registration statements and periodic reports related to a public offering and proxy materials.
The firm reportedly disclosed AUM figures in these filings that included “commitment” amounts from investment management agreements with non-discretionary separately managed account (SMA) clients. The firm treated these amounts as uncalled committed capital, even though, according to the SEC’s order, the SMA clients were not obligated to make investments based on these commitment statements. The firm was entitled to call capital for an investment only after the client approved the investment.
According to the order, the co-CEOs knew that the SMA clients were not likely to invest the full commitment amounts. The SEC also found that the firm used the commitment amounts in a proposal to two of its business development company (BDC) clients that the BDCs should merge and purchase the firm as a portfolio company. The SEC noted that this proposal to the BDC clients was investment advice. The commitment amounts were also used in related proxy filings. The SEC found that the firm and co-CEOs violated several antifraud provisions, and it fined the firm and co-CEOs a total of $10 million.
See In the Matter of Medley Management Inc., Brook B. Taube and Seth B. Taube and related press release (Apr. 28, 2022).
