The Securities and Exchange Commission announced yesterday that it filed charges against a Los Angeles-based advisory firm and its president for fraud.
The SEC alleges that between September 2006 and March 2009, Delta Global Advisors Inc. and its president, Charles P. Hanlon, claimed on its ADV forms that the firm was eligible for registration with the SEC because it advised a registered investment company. While the firm had entered into several consulting agreements with the sponsor of unit investment trusts (UITs), the SEC claims the firm did not have an advisory contract with the registered investment company.
The SEC also alleges that between March 2007 and July 2008, the firm's ADV forms improperly included the trusts' assets as Delta's advisory assets under management, even though Delta did not provide continuous and regular supervision of the trusts' assets. Due to the inclusion of the trusts, the firm claimed it managed between $656 million and $1.49 billion, when in fact the firm managed closer to $9 million, according to the SEC. For every period reflected in Delta's form ADV filings, the company did not have the $25 million or more under management required for SEC registration. The firm allegedly posted false asset under management claims on the company's Web site by posting articles where Hanlon and Delta staff were quoted, and claimed to manage more than $1 billion in assets.
In 2009 and 2010, Delta's financial condition was impaired due to a lack of liquid assets and overdue bills. The company also had an unsatisfied court judgment for breach of fiduciary duty filed by one of Delta's clients and was ordered to pay $353,706 in damages.
In a letter from Delta dated November 13, 2009, the company informed SEC examination staff that it was "in the process of communicating with all clients on this matter and will have completed this process by December 9, 2009." However, contrary to Delta's statement, neither Delta nor Hanlon disclosed to their clients the company's poor financial condition, the court judgment, or the fact that the Financial Industry Regulatory Authority had suspended Hanlon from acting in any registered capacity for failing to comply with an arbitration award, according to the SEC.
An initial hearing date has yet to be determined.