SEC FILES CIVIL INJUNCTION AGAINST INVESTMENT ADVISOR AND PRINCIPAL FOR MISREPRESENTATIONS REGARDING THE FOREX MARKET

The following excerpt is from the SEC website: “The Securities and Exchange Commission announced that, on September 8, 2011, it filed a civil injunctive action in federal district court in Massachusetts against registered investment adviser EagleEye Asset Management, LLC, and its sole principal, Jeffrey A. Liskov, both of Plymouth, MA, in connection their fraudulent conduct toward advisory clients. In its complaint, the Commission alleges that, between at least April 2008 and August 2010, Liskov made material misrepresentations to nearly a dozen advisory clients to induce them to liquidate investments in securities and instead invest the proceeds in foreign currency exchange (“forex”) trading. These investments, which were not suitable for older clients with conservative investment goals, resulted in steep losses for clients, totaling nearly $4 million, but EagleEye and Liskov came away with over $300,000 in performance fees on these investments alone, in addition to other management fees they collected from clients. Liskov’s strategy was to generate temporary profits on client forex investments to enable him to collect performance fees, after which client investments invariably would sharply decline in value. According to the Commission’s complaint, Liskov’s material misrepresentations to clients concerned the nature of forex investments, the risks involved, and his expertise and track record in forex trading. As to some clients, Liskov did not explain what forex trading was at all. As to other clients, Liskov downplayed the risks of forex investments. Liskov also falsely told several clients that he had had prior success in forex trading, when in fact he had lost substantial sums of his own or other clients’ money in forex trading when he made such statements. The Commission’s complaint further alleges that, in the case of two clients, without their knowledge or consent, Liskov liquidated securities in their brokerage accounts and transferred the proceeds to their forex trading accounts where he lost nearly all client funds, but not before first collecting performance fees for EagleEye (and ultimately himself) on short-lived profits in the clients’ forex accounts. The complaint alleges that Liskov accomplished the unauthorized transfers by doctoring asset transfer forms. On several occasions, Liskov took old forms signed by the clients and used “white out” correction fluid to change dates, asset transfer amounts, and other data. Liskov also used similar tactics to open multiple forex trading accounts in the name of one client, thereby maximizing his ability to earn performance fees for EagleEye (and ultimately himself) on the client’s investments, all without disclosing this to the client or obtaining the client’s consent. The Commission’s complaint alleges that, by the foregoing conduct, EagleEye and Liskov violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The Commission further alleges that EagleEye failed to maintain certain books and records required of investment advisers in violation of Section 204 of the Advisers Act and Rule 204-2(a) thereunder, and that Liskov aided and abetted EagleEye’s violations of these provisions. The Commission seeks a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest thereon, and the imposition of a monetary penalty against both EagleEye and Liskov.”

SEC WILL USE INFLATION GUIDE TO DETERMINE WHEN ADVISERS CAN CHARGE CLIENTS PERFORMANCE FEES

The following is an excerpt from the SEC website:

“Washington, D.C., July 12, 2011 – The Securities and Exchange Commission today issued an order that raises, to adjust for inflation, two of the thresholds that determine whether an investment adviser can charge its clients performance fees. The order carries out a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Rule 205-3 under the Investment Advisers Act allows an investment adviser to charge a client performance fees if the client meets certain criteria, including two tests that have dollar amount thresholds. Under today’s order, an investment adviser will be able to charge performance fees if the client has at least $1 million under the management of the adviser, or if the client has a net worth of more than $2 million. Either of these tests must be met at the time of entering into the advisory contract. The previous thresholds were $750,000 and $1.5 million respectively, and were last revised in 1998.
The Dodd-Frank Act requires that the Commission issue an order to adjust for inflation these dollar amount thresholds by July 21, 2011 and every five years thereafter. The Commission published a notice of its intent to issue the order on May 10, 2011. The Commission also proposed amendments to rule 205-3, which are currently under consideration.
The order will be effective on September 19, 2011, which will be approximately 60 days after its publication in the Federal Register.”