The Securities and Exchange Commission today announced fraud charges against an Atlanta-based investment advisory firm and two executives accused of selling unsuitable investments to pension funds for the city’s police and firefighters, transit workers, and other employees.The SEC’s Enforcement Division alleges that Gray Financial Group, its founder and president Laurence O. Gray, and its co-CEO Robert C. Hubbard IV breached their fiduciary duty by steering these public pension fund clients to invest in an alternative investment fund offered by the firm despite knowing the investments did not comply with state law. Georgia law allows most public pension funds in the state to purchase alternative investment funds, but the investments are subject to certain restrictions that Gray Financial Group’s fund allegedly failed to meet.
It seems that every once in a while securities professionals need to be reminded that conduct that they think is done in the “ordinary course of business” is actually a securities law violation, with significant consequences.
The SEC’s increased use of administrative proceedings as the forum for its enforcement actions has come under fire in recent months, with many of the respondents in those cases filing lawsuits arguing (unsuccessfully) that administrative proceedings are actually unconstitutional.
In a speech on Friday SEC Commissioner Michael Piwowar acknowledged that as a matter of “fairness,” the SEC should draft guidelines to establish “which cases are brought in administrative proceedings and which in federal courts.”
For more information, go to SEC’s Piwowar Seeks Guidelines Governing When SEC Will Bring Cases as APs . (Hat tip to Securities Docket for alerting us to the speech.