The SEC charged a Long Island-based money manager and his two firms with engaging in a fraudulent investment program that generated more than $8 million in illicit commissions and fees.  Warren Nadel, operating through his advisory firm Registered Investment Advisers, and his broker-dealer Warren D. Nadel & Co., allegedly induced clients to invest in a purportedly liquid, cash management strategy that engaged in market transactions.

    Allegations in SEC Complaint.   According to the SEC, Nadel claimed he was investing client assets in preferred utility securities for short periods of time so as to to generate capital appreciation or dividends, depending on their goals.  However, by 2007 or earlier, he and his firms knew that the market was not sufficiently liquid to permit frequent, substantial purchases of these securities at attractive prices.  So Nadel fraudulently concealed these market conditions from clients.

He and his firms did so by deliberately overstating the value and liquidity of client holdings on communications with clients and prospective clients, as well as on monthly statements.  They also concealed critical information about the way they were supposedly executing the strategy.  Because he couldn't transact in the open markets, he instead simply exchanged securities among clients, often at the inflated prices he set.

Nevertheless, clients were informed (orally and in writing) that open-market transactions had been executed on their behalf - and they received confirmations that reflected market transactions.  The vast majority, however, weren't executed on the open market.  Nadel never advised the clients that the counterparties to these transactions were his other RIA clients, and he never asked clients for their  consent to execute trades between clients.  Finally, Nadel allegedly misrepresented RIA assets under management, claiming that the firm managed more than twice its actual assets.

The SEC seeks to have Nadel and the firms pay financial penalties and disgorge ill-gotten gains, plus prejudgment interest.

    SEC Staff Credits.   Alison Conn and Maureen King (NY Regional Office) conducted the investigation, with assistance from Michael Fioribello, Debbie Chan, Linda Lettieri, Jeffrey Berfond and Margaret Lett (SEC's B/D examination staff) and Joseph DiMaria, James Anastasia, Steven Gilchrist and Julianne Lieberman (IA examination staff).   SEC litigation will be led by Richard Primoff and Maureen King.   [SEC PR 11-11, 1/13]