A Florida RIA and its president, accused by the Securities and Exchange Commission in 2023 of engaging in fraud and multiple other violations, last week consented to a final judgment that included permanent injunctions against violations of the Investment Advisers Act and $425,000 in civil penalties, the agency said last week.
Chauncey Forbush Lufkin III and his firm Lufkin Advisors, of Riviera Beach, were accused last year of, among other things, failing to disclose they had lost or forgotten the passwords or keys needed to access a $10 million crypto wallet and the assets held within, the original SEC complaint alleged.
Lufkin did not return a call for comment by the time this story was filed.
According to its latest Form ADV, filed December 2022, Lufkin Advisors runs three pooled investment vehicles totaling $115 million in assets. The form reported zero employees.
According to the complaint, Lufkin was the only employee remaining at the firm and drew down $250,000 in annual compensation.
In addition to allegedly losing access to the crypto wallet, Lufkin allegedly failed to disclose that he had invested Lufkin Advisors assets in a venture capital fund once when his wife worked there part time and then multiple times when she became a firm partner, according to the complaint.
He also allegedly charged expenses of a foundation he ran to one of the pooled vehicles, and entered into a $50,000 per year personal consulting agreement with a friend, charged to one of the vehicles as well, the complaint said.
Finally, both Lufkin and his firm allegedly made a variety of misstatements on the latest Form ADV, from the description of the firm’s primary business to the identities of the custodians for the pooled vehicles (three of the listed custodians were, in fact, no longer custodians), and failed to manage the value of the assets they managed, the complaint said.
“Chauncey Lufkin has not had an accurate accounting of the value of the assets in the private funds, either individually or collectively, for one to two years,” the complaint said. “He has only a vague sense of the crypto assets he has bought for the private funds and does not know (and in some cases, cannot get) the quantities and values of those assets.”
The SEC’s complaint put forth that while there were only a handful of investors remaining in the private funds, they were at risk of losing their investments. The agency requested an asset freeze, directions to Lufkin and his firm to preserve and produce all documents related to the funds and an accounting of all assets managed by the firm and all expenses going back two years.
The official charges included fraudulent conduct by investment advisors, fraudulent conduct by investment advisors to a pooled investment vehicle, failure to comply with asset custody requirements, failure to create, implement and review advisor policies and procedures, failure to adopt an advisor code of ethics, material misstatements in reports to the SEC and failure to keep and produce required books and records, the complaint said.