U.S. regulators accuse adviser of misleading fund board
WASHINGTON Aug 21 (Reuters) - U.S. securities regulators filed civil charges on Wednesday against a North Carolina investment adviser and its former owner, alleging they sought to win business by misleading a fund board about the firm's electronic currency trading program.
The U.S. Securities and Exchange Commission's case against Chariot Advisors LLC and ex-owner Elliott Shifman, 48, is part of a broader crackdown by the SEC into the investment advisory contract renewal process and fee arrangements in the industry.
Under federal law, fund boards are required to annually evaluate their advisory agreements, and report back to shareholders about the key factors they considered.
In this latest enforcement action, the SEC accuses Chariot Advisors and Shifman of touting an algorithmic currency trading program as a competitive selling point in two board presentations.
The SEC said Chariot and Shifman effectively defrauded the Chariot Absolute Return Currency Portfolio, a fund that was formerly part of the Northern Lights Variable Trust fund complex, because no such algorithmic trading program existed.
"At the time of Shifman's representations to the board, Chariot Advisors had not devised or otherwise possessed any algorithms or computer models capable of engaging in the currency trading that Shifman described," the SEC alleges.
Jeff Barclay, an attorney for Shifman, said his client believes he acted in good faith and in the best interest of investors.
An attorney representing Chariot Advisors could not be immediately reached for comment.
Instead of using an algorithm to conduct currency trading after the fund launched in July 2009, the SEC said the firm hired a trader who made judgments on how and what to trade.
She traded currencies for the fund until September 2009, but was later terminated for poor trading performance, the SEC said. After that, Chariot hired a third-party that uses algorithms to trade currency.
The SEC said that Shifman's efforts to mislead the board in turn led to "misrepresentations and omissions in the Chariot Fund's registration statement and prospectus."
This marks at least the fourth enforcement case that the SEC's specialized asset management unit has brought in connection with its sweep into compliance with laws requiring fund boards to evaluate their agreements with investment advisers.
In 2011, a unit of Morgan Stanley agreed to settle with the SEC over allegations it had charged a fund and its investors for advisory serves that were not actually being performed.
In a related case to the Morgan Stanley matter, a Malaysia-based adviser known as AMMB Consultant Sendirian Berhad also settled with the SEC over similar allegations.
Most recently, in May of this year, the SEC also allowed gatekeepers of two mutual fund trusts to settle allegations that they misrepresented certain details during the investment advisory contract renewal process.
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