Last week, the Securities and Exchange Commission (“SEC”) charged a “purported adviser in San Diego with stealing money from clients for personal use” and running a Ponzi scheme.
The Southern California firm, Coast Capital Management (“Coast Capital”), owned by Paul Moore, was never registered as an investment adviser with the state of California or the SEC. According to the SEC press release, Moore successfully raised nearly $2.6 million from unsuspecting investors. Allegedly, Moore spent most of the money on himself and used “$625,000 in client funds to repay earlier client with money.”
Moore provided offering documents to the investors that included a Private Placement Memorandum and Subscription Agreement, which represented that Coast Capital was a private hedge fund that “operated as a fund under Section 3(c)(1) of the [Investment Company Act of] 1940.”
The complaint that was filed by the SEC in the San Diego federal court outlines allegations of violating federal securities laws and seeks a permanent injunction, payment of illegally obtained gains with interest, and civil penalties. The U.S. Attorney’s Office has also announced criminal charges against Moore.
Importantly, advisory firms managing private funds are required to be registered with either the SEC or one or more states, or file as an “exempt reporting adviser”, as applicable. Additionally, due diligence should be performed prior to investing in or recommending any private funds.
Core Compliance can help investment advisers with registration and assisting with performing due diligence. For more information on this and other related subjects, please contact us at (619) 278-0020 to schedule a consultation.