A chief compliance officer has been barred from the industry and fined $150,000 by the Securities and Exchange Commission for incorrectly claiming exemption from the Advisers Act.
Brian Kimball Case established Bradway Capital to be the advisor to two private equity funds he formed, and filed with the SEC as an exempt reporting advisor because the firm had less than $150 million in assets under management.
But as the business operated in parallel to Bradway Financial, another of Case’s firms which advised retail investors, the SEC ruled that the two advisors should be treated together. They were under common control and operationally integrated – they shared the same employees, operated in the same office and shared the same technology systems.
The agency alleged that in filing as an exempted advisor, Case hoped to avoid the custody rule’s audit and compliance requirements.
Bradway Capital also “inflated values” of investments held in the private funds it advised in both statements to investors and in its Form ADV, and improperly used fund assets to pay legal fees associated with the SEC investigation, the agency filing said. The fund has since been repaid in full.
“This case has significant implications for larger organizations. If a firm operates a registered investment advisor affiliate, the SEC, based on this action’s reasoning, would prohibit the firm from claiming an exemption registration for an unregistered fund manager under the same roof. The SEC is using the regulatory flexibility to integrate advisers under one Form ADV as a regulatory weapon to force registration on otherwise exempt affiliates,” Todd Cipperman, director of Cipperman Compliance, said.
Bradway Capital Management is a Delaware limited liability company based in Connecticut, according to its SEC registration documents, but the SEC alleged it actually conducted business from Bradway Financial’s home office in Massachusetts. It served as an investment advisor to Bradway Capital Insights Fund and Bradway Capital Fund II.