Tuesday, September 7, 2010
The SEC charged Boulder, Colo.-based investment adviser Neal R. Greenberg with fraud and breach of fiduciary duty in the marketing and recommendation of his firm's hedge funds to investors, including many elderly clients. According to the SEC, Greenberg falsely stated that the Agile hedge funds offered and managed by his two investment advisory firms were suitable for conservative investors who were retired or nearing retirement. However, the Agile hedge funds used leverage and concentrated in a small number of investments. The funds suffered substantial losses in September 2008 and ceased redemptions to investors. The SEC Division of Enforcement further alleges that the Agile hedge funds improperly collected approximately $2 million in management and performance fees that were not adequately disclosed to investors.
According to the SEC's order, the majority of Greenberg's advisory clients were generally conservative, older investors who wanted low-risk investments offering significant capital protection. The Division of Enforcement alleges that Greenberg failed to ensure that adequate compliance policies and procedures were developed or implemented for determining when it would be suitable for advisory clients to invest in complex hedge fund products, particularly for unsophisticated investors or elderly clients on limited incomes who were risk-averse. Greenberg also failed to ensure that adequate supervisory procedures were developed or implemented relating to those determinations.
With regard to fees, the SEC's order notes that when one Agile hedge fund invested in another Agile hedge fund, investors were assessed performance and management fees on the leveraged portion of their investment. These fees, which totaled approximately $2 million between 2003 and 2006, were not disclosed to investors.