SEC brings Administrative Proceeding against Fund Manager for failing to make Books and Records available and misrepresentation on ADV
Written by Jay Gould
On November 16, 2010, the U.S. Securities and Exchange Commission (“SEC”) instituted public administrative and cease-and-desist proceedings against Thrasher Capital Management, LLC (“Thrasher”) and its Chief Executive Officer and Managing Member, James Perkins, pursuant to Sections 203(e), 203(f) and 203(k) of the U.S. Investment Advisers Act of 1940, as amended (the “Advisers Act”). The proceedings were instituted because (i) Thrasher, a SEC-registered investment adviser, failed to make available to the SEC the books and records that Thrasher was required to make available under Section 204 of the Advisers Act and (ii) Thrasher’s Form ADV contained untrue statements of material facts regarding its client base and its ownership. The SEC Order indicates that Thrasher did not respond to the SEC Examination Staff to contact them, which precipitated the SEC issuing a subpoena in order to compel cooperation. The SEC also found material discrepancies in Thrasher’s Form ADV that could have been easily remedied with only a minimum of compliance oversight. As a result of such conduct, the SEC found that Thrasher willfully violated Section 204(a) of the Advisers Act, which requires advisers that use the mails or interstate commerce to maintain and make available to the SEC certain books and records and Section 207 of the Advisers Act, which prohibits any “person” (defined to include advisers, such as Thrasher) to “make any untrue statement of a material fact in any registration application or report filed with the [SEC] under section 203 or 204, or willfully to omit to state in any such application or report any material fact which is required to be stated therein.” Perkins was found to have willfully aided and abetted and to have caused Thrasher’s violations of Sections 204(a) and 207 of the Advisers Act.
In anticipation of the institution of the proceedings, Thrasher and Perkins submitted an Offer of Settlement (“Offer”), which the SEC accepted. In connection with the Offer, the SEC ordered that (i) Thrasher and Perkins cease and desist from committing or causing any violations and any future violations of Sections 204(a) and 207 of the Advisers Act; (ii) Thrasher’s investment adviser registration be revoked; and (iii) Perkins be suspended from association with any investment adviser for nine months. No monetary penalty was imposed on Perkins because he submitted a sworn Statement of Financial Condition along with other evidence and has asserted that he is unable to pay a civil penalty.
Investment advisers, whether registered with the SEC or a state, should view this particular enforcement action as an example of how not to interact with their primary regulator. When the SEC or a state Securities Commission asks for information, advisers should respond promptly and professionally. Additionally, with the new disclosure requirements that will be required in 2011 under the new “Brochure Rule,” advisers must be vigilant to maintain the accuracy of their disclosures in both their filings with regulators and their communications to clients. The settlement of this enforcement action by Thrasher is now a material proceeding that must be disclosed to all current and potential clients. Investment advisers should make every effort to avoid a similar fate and can do so with an effective compliance program that is appropriate to the business of each adviser.