SEC Charges CT Firm With Investment Fraud

     (CN) – A Connecticut-based investment firm placed more than $43 million of its clients’ money in illiquid bonds without disclosing that an affiliated company reaped fees from the transactions, federal regulators claim in court.
     In a complaint filed in Manhattan Federal Court on Tuesday, the U.S. Securities and Exchange Commission says Atlantic Asset Management LLC “violated a fundamental duty to its client by placing its own financial interests ahead of those of its clients.”
     The government says the investment firm is partially owned by an entity called BFG Socially Responsible Investing Ltd., but never disclosed that relationship in its public SEC filings.
     It goes on to say that it purchased the “dubious, illiquid” bonds at the suggestion of a BFG representative knowing full well that the sales would generate a private placement fee for an affiliated broker-dealer company
     The SEC further alleges an officer of Atlantic Asset Management discussed “balancing the ‘fiduciary duty’ owned to the placement agent with the duty owed to the investment firm’s clients, and it ultimately put itself first, approving the bond purchases without telling clients about the conflict of interest.
     “Upon learning about the investments in the bonds, several AAM clients expressed concern over the bonds’ valuation and suitability. They demanded, unsuccessfully, that the investments be unwound,” the complaint says.
     The agency accuses the firm of violating the antifraud provisions of the Investment Advisers Act of 1940, and related rules.
     U.S. District Judge William Pauley III has issued an order to show cause, giving the investment firm until Dec. 21 to explain why he shouldn’t grant the SEC’s request for preliminary and permanent injunctive relief, and the appointment of an independent monitor.

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