SEC CHARGES INVESTMENT ADVISORY FIRM AND LEADER FOR HIDING CLIENT ASSET SHORTFALL

FROM:  SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced fraud charges and an asset freeze against a Columbus, Ohio-based investment advisory firm and its president for repeatedly hiding a shortfall of more than $700,000 in client assets.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Ohio, a shortfall in a money market fund account managed by Professional Investment Management (PIM) was discovered when the SEC conducted an examination of the firm to verify the existence of client assets.  PIM reported in account statements sent to clients that the firm held a total of approximately $7.7 million in a particular money market fund when in fact the account reflecting these investments held less than $7 million.

The SEC further alleges that Douglas Cowgill, who is the chief compliance officer as well as president of the firm, attempted to disguise this shortfall from SEC examiners by entering a fake trade in PIM’s account records.  The purported trade was later reversed.  Cowgill allegedly provided additional falsified reports to SEC staff, and he later transferred funds from a cash account at another financial institution to eliminate the shortfall in the money market fund account.  However, that cash account also was held for the benefit of clients, thus Cowgill merely moved the shortfall from one asset holding to another in an effort to avoid detection.

“Our complaint alleges that Cowgill went to extraordinary lengths to hide a significant shortfall in client assets, even providing manufactured documents to SEC staff,” said Robert J. Burson, associate director of the SEC’s Chicago Regional Office.  “Fortunately our examiners and investigators diligently tested Cowgill’s false statements and confirmed the existence of the shortfall in an account holding the investments of many clients.”

In response to the SEC’s request for emergency relief for investors, U.S. District Court Judge Algenon L. Marbley issued a temporary restraining order and imposed an asset freeze to protect client assets.

According to the SEC’s complaint unsealed on May 2, PIM manages approximately $120 million in assets for approximately 325 clients, including a significant number of retirement plans.  PIM was registered with the SEC as an investment adviser from 1978 until Sept. 30, 2013, when it withdrew its registration.  The firm had custody of client assets through various omnibus securities and cash accounts, and therefore was required to comply with the “Custody Rule” under the Investment Advisers Act of 1940.  The Custody Rule is designed to protect advisory clients from misuse of their funds and securities.

According to the SEC’s complaint, the SEC commenced an examination of the firm in November 2013 after learning that for four consecutive years, PIM had failed to arrange for independent verification of client assets as required by the Custody Rule, and had filed a notice withdrawing its registration with the SEC.

The SEC’s complaint alleges that PIM and Cowgill violated the antifraud provisions of the federal securities laws.  The complaint further alleges that PIM violated the registration and custody provisions of the Investment Advisers Act, and Cowgill aided and abetted and caused the violations.  A hearing on the SEC’s motion for a preliminary injunction has been scheduled for May 12.

The SEC’s investigation arose from the examination conducted by Will Davis, Michael Lockhart, Nathan Haselhorst, and Jack Howard of the Chicago Regional Office.  The ongoing investigation and litigation are being conducted by David Benson, Ann Tushaus, Paul Montoya, John Birkenheier, and Michael Foster of the Chicago office.