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Regulatory Sanctions

Investment Adviser, Former COO/CCO Settle Auction Fraud Charges

March 18, 2019

by Howard Haykin


A registered investment adviser (“RIA”), and its former chief operating officer (“COO”), agreed to settle SEC charges that they manipulated the auction of a commercial real estate asset on behalf of one client for the benefit of another.   The RIA will pay over $400,000 in fines, disgorgement and prejudgment interest; the CCO will pay a $65,000 fine and serve a 12-month suspension.


►    The New York, NY-based RIA, registered with the SEC since the 2012, specializes in advising clients with respect to commercial real estate investments.

►    The individual was COO and a member of the RIA’s investment committee from 2012 until his separation from the firm in 2017. He also served as the firm’s chief compliance firm from 2012 to 2015.



WHAT WENT WRONG.    In or about April 2015, the RIA was tasked with selling a commercial real estate asset on behalf of a collateralized debt obligation (“CDO”) client. However, the RIA and Talimco and Rogers aimed to acquire the asset for another client - a private fund.


Rather than use his best efforts to maximize the price obtained for the seller – which would have entailed seeking out multiple bona fide bidders – the COO obtained one bid from the firm’s affiliated private fund and two erroneous bids, from ‘unwilling bidders’ who were assured that they wouldn’t win the auction.


The scammed auction deprived the selling client of the opportunity to obtain multiple bona fide bids for the asset and maximize their profit, and it violated Section 206(2), Prohibited Transactions by Investment Advisers, of the Investment Advisers Act.