Last week, the Securities and Exchange Commission (“SEC”) charged a Washington-based hedge fund firm and its Chief Executive Officer & Chief Investment Officer, Chris Yoo with fraudulent inflammation of its private fund assets in order to receive unearned management fees.
According to Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, “Yoo manipulated the value of certain fund assets to manufacture millions of dollars in illusory profits that he used to line his pockets with fees he did not truly earn. He also failed to disclose a conflict of interest involving his other firm”. The conflict was due to the fact that Yoo’s affiliated investment management firm, Summit Asset Strategies Wealth Management, LLC (“Summit”), for which Yoo served as Manager & Chief Compliance Officer, was paid referral fees for referring clients to the hedge fund. The SEC’s complaint also outlined that Yoo and Summit had made a number of false statements to investors through the hedge fund’s offering documents and financial statements.
Yoo neither admitted nor denied the allegations, but agreed to be barred from the industry and he and his affiliated firms agreed to pay over $1 million in penalties and interest.
Additionally, charges were brought against the third-party auditors of Yoo’s Summit Stable Value Fund for not performing an audit in accordance with generally accepted accounting (GAAP) standards and not adequately confirming the number of the hedge fund’s assets. The two accountants involved agreed to be barred from practicing on behalf of publicly traded companies and any SEC regulations firms for three years.
As fiduciaries, investment advisers are required to put the interests of their clients above their own. Ensuring the adherence to this duty requires dedication from senior management, along with a robust compliance program and knowledgeable compliance personnel.
Core Compliance offers an extensive list of compliance services to investment advisory firms. We tailor our services to our client’s needs, providing as much or as little assistance as necessary to help firms remain in compliance with applicable regulatory requirements. For more information on our services, this enforcement action, or other related subjects, please contact us at (619) 278-0020 to schedule a consultation.