SEC Charges Investment Firm, Executives With Fraud For Selling Allegedly Unsuitable Investments to Pension Funds


The Securities and Exchange Commission on Thursday charged an investment advisory firm and two of its executives with fraud for selling allegedly unsuitable investments to pension funds.

The SEC says the firm – Gray Financial Group – knowingly sold investments that ran afoul of state law. The law in question has to do with how much of a pension fund’s portfolio can be invested in alternative asset classes at one time.

More from the Atlanta Business Chronicle:

The SEC’s Enforcement Division alleges the company and its two executives 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.

The SEC’s Enforcement Division alleges that Gray Financial Group has collected more than $1.7 million in fees from the pension fund clients as a result of the improper investments.


The SEC’s Enforcement Division further alleges that Gray Financial Group and Gray made material misrepresentations to at least one client when asked specifically about the investments’ compliance with the law. They also misrepresented the number and identity of prior investors in the fund.

The specifics of the SEC’s complaint, from the Atlanta Business Chronicle:

* A Georgia public pension fund’s investment is limited to no more than 20 percent of the capital in an alternative fund. Two of the pension funds’ investments surpassed that limit.

* The law requires at least four other investors in an alternative fund at the time of a Georgia public pension fund’s investment. There were fewer than four other investors in GrayCo Alternative Partners II L.P. at the time of these investments.

* There must be at least $100 million in assets in an alternative fund at the time a Georgia public pension fund invests. GrayCo Alternative Partners II LP has never reached that amount.

The two executives being charged are Gray’s founder and president Laurence O. Gray, and its co-CEO Robert C. Hubbard IV.


Photo by Securities and Exchange Commission via Flickr CC License

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