Washington-Based Advisory Firm Cited for Disclosure and Reporting Failures

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The Securities Exchange Commission (“SEC”) has recently charged Strategic Capital, LLC (“Strategic Capital”) an independent advisory firm in the state of Washington, for violating rules 203(e) and 203(k)  the Investment Advisers Act of 1940,(“Advisors Act”).

Strategic Capital distributed “false and misleading advertisements” by failing to disclose that the published results were partially based on returns of an index rather than the actual returns.  In another advertisement, the firm printed results that did not reflect deducted fees, which overstated their investment performance.

 “Investment advisers must be fully forthcoming about how they execute client trades and portray past performance,” said Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.

The thorough investigation by the SEC revealed also that Strategic Capital and its CEO N. Gary Price also had “engaged in more than 1,100 principal transactions” through its brokerage firm, RP Capital LLC without properly disclosing the information to clients.  When engaging in principal transactions, firms must not only disclose this information to clients, but must also obtain the client’s consent.  In this case, Strategic Capital failed to do both.  According to the SEC, Strategic Capital clients did not receive best execution from the firm thereby further breaching their obligations under the Advisers Act.

“Strategic Capital clients were not provided all of the information they needed to evaluate the firm’s potential conflicts of interest and investment management skills,” said Sprung.

Although the firm and CEO did not admit or deny to any wrong doing, they have agreed to pay $368,459 to current and former clients.  The firm also must pay prejudgment interest of $17,831 and a penalty of $200,000.

It is imperative for personnel of investment advisors to understand the regulatory provisions of the Advisors Act and how they apply to the business.

For further information on this and other related subjects, please contact us at info@jackolg.com  or (619) 298-2880.

 

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