The Securities and Exchange Commission announced fraud charges Thursday against Gray Financial Group for allegedly selling unsuitable investments to the $1.3 billion Atlanta General Employees’ Pension Fund and pension funds for the city’s firefighters and police officers, as well as the MARTA/ATU Local 732 Employees Retirement Plan.
The SEC also charged Laurence O. Gray, founder and president, and co-CEO Robert C. Hubbard IV.
According to the SEC order instituting an administrative proceeding, SEC enforcement officials allege Gray Financial Group collected $1.7 million in fees from the pension fund clients by improperly recommending investments in GrayCo Alternative Partners II, in violation of Georgia law, which limits a public pension fund to a 20% investment of an alternative fund and requires at least four other investors and at least $100 million in assets. SEC officials said the GrayCo investments with the public pension funds violated the law.
“We allege that Gray Financial Group and its senior officials put their own interests ahead of their clients, and Gray deliberately misrepresented that the recommended investments were permissible under Georgia law,” said Walter Jospin, SEC Atlanta regional director, in a statement.
SEC officials said in the statement that their investigation is continuing.
Gray & Co., resigned as investment consultant to the general employees’ plan in October 2013, after a pension fund trustee complained to the SEC that the firm didn’t adequately reveal its management of the private equity fund.
A public hearing will be held within 60 days and an administrative law judge will have 300 days to issue an initial decision.
Calls to Gray Financial Group attorney Terry Weiss, with the law firm Greenberg Traurig, were not returned by press time. The firm filed a lawsuit Feb. 19 questioning the legality of SEC administrative proceedings.