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SEC brings Atlantic Asset Management to book
Chris Hamblin
16 December 2015
The SEC alleges that Atlantic Asset Management LLC invested more than $43 million of clients' funds in illiquid bonds issued by a Native American tribal corporation without disclosing a conflict of interest. The bond sales generated a private placement fee for the broker-dealer, whose parent company partially owns Atlantic Asset Management. In other words, according to the SEC, the advisory firm placed its owners' financial interests ahead of those of its clients.
According to the SEC’s complaint, filed in a federal court in Manhattan:
- Atlantic is partially owned by an entity called BFG Socially Responsible Investing Ltd., although BFG’s ownership is not disclosed in Atlantic Asset Management’s publicly available disclosures to the SEC.
- At the suggestion of a BFG representative, Atlantic Asset Management purchased the dubious, illiquid bonds on behalf of clients while aware that the sales would generate a private placement fee for a broker-dealer affiliated with BFG. Atlantic Asset Management also was aware that proceeds from the bond sales were to be used to purchase an annuity provided by BFG’s parent company.
- An Atlantic officer, when evaluating whether or not to make the investments, discussed the possibility of balancing the “fiduciary duty” owed to the placement agent with the duty owed to Atlantic Asset Management’s clients.
- Atlantic Asset Management ultimately decided to put its owner’s financial interests first, approving the bond purchases without telling clients about the conflict of interest.
- Upon learning about the investments in the bonds, several of Atlantic's clients expressed concern over the bonds’ valuation and suitability. They demanded, unsuccessfully, that the investments should be unwound.
The SEC complaint charges Atlantic Asset Management with breaking the anti-fraud provisions of the Investment Advisors Act 1940 (and related rules) and s207 Advisors Act by failing to disclose BFG’s ownership interest in the Form ADV that it posted off to the SEC.