The Securities and Exchange Commission announced fraud charges Tuesday against investment advisory firm Atlantic Asset Management for allegedly investing institutional clients in $43 million of illiquid bonds without disclosing a conflict of interest with the broker-dealer connected to the firm.
Atlantic is partially owned by BFG Socially Responsible Investing Ltd., a fact not disclosed in its public SEC filings.
According to the SEC's complaint filed in federal court in Manhattan, BFG used its undisclosed ownership interest to dictate AAM's investment in what SEC officials called “dubious, illiquid bonds” issued by a Native American tribal corporation. The sales generated a private placement fee for the affiliated broker-dealer, and bond sales proceeds were to be used to purchase an annuity provided by BFG's parent company.
SEC officials, who are requesting a jury trial, said clients were not told about the conflict of interest, and their concerns over the bonds' valuation and suitability were not addressed. AAM has not found buyers for the bonds and clients have not been able to liquidate their positions, according to the SEC complaint.
The Atlantic Asset Management website describes it as a certified minority- and women-owned business enterprise with $12 billion in assets under management and advisement. It was formerly known as Hughes Capital Management LLC. Michael J. Chamowitz, Atlantic corporate counsel, said in an e-mailed statement that the firm’s officers were manipulated by “bad actors” using the company for their own purposes, and the officers took immediate action to have it brought to the SEC when they discovered the “pervasive and unlawful nature of the scam.” The SEC case “is a means to expose the wrongful acts of those disingenuous individuals,” he said.