Now and then, registered investment advisors sometimes inflate their assets under management numbers just a little bit to look more attractive to potential new investors.
The practice is like a short dude wearing subtle lifts on a first date, or cooks putting more old lettuce in a bad deli salad. It happens, but you gotta be subtle and not get too carried away.
Investment adviser and right-wing radio personality Dawn J. Bennett knows what we're talking about...
By all outward appearances, Dawn J. Bennett was a success. Barron's magazine named her three times to its lists of top financial advisers, showing her managing more than $1 billion in client assets. She often was quoted in the media and had her own nationally syndicated radio show, “Financial Myth Busting.”
But the Securities and Exchange Commission contends much of Ms. Bennett's success was a sham, built on heavily inflated claims about assets and portfolio performance that she used to drum up business from high-net-worth clients.
What's "heavily inflated?"
According to the SEC, Ms. Bennett claimed she and her firm had, at different times, assets under management of $1.2 billion to more than $2 billion, when the most the firm ever managed was $407 million. That was made up of $338 million in brokerage assets, $67 million in pension consulting assets and $1.1 million in advisory assets, the SEC said.
Oh, yeah. That's a lot of inflating. And according the InvestmentNews investigation, a major thrust in Bennett's alleged AUM padding was her obsessions with Barron's rankings of top financial advisers. She was also, the SEC claims, fond of making up numbers to brag about on her radio show to make herself appear more successful to listeners and potential clients while she meta-ironically busted myths about finance.
But the SEC is clearly not amused by any of the dark humor in Bennett's story, and that can be ascertained by reading the first sentence of a brief it filed after an initial hearing in her case: "Dawn Bennett is wholly unfit for any role in the securities industry."
Clearly put off by the SEC's unsubtle shade-throwing, Bennett decided to go a step further than uncooperative and ignore the SEC altogether...
This is from Reuters back in February:
The U.S. Securities and Exchange Commission on Monday is to wrap up its case against a financial adviser who refuses to defend herself in the agency's in-house enforcement proceeding, citing constitutional issues.
Dawn Bennett, chief executive officer of Bennett Group Financial Services LLC., in Washington, DC, and her lawyers have skipped the proceeding, which began last Wednesday and ends on Monday, following testimony from a final SEC witness.
Bennett reportedly decided that the SEC had stacked the deck against her by using in-house judges to decide her fate and then sued the agency on constitutional grounds. But by playing the long game and ghosting on her own hearing, Bennett kind of sacrificed a major pawn in the short-term...
The Securities and Exchange Commission late Monday barred Dawn J. Bennett from the securities industry for exaggerating her firm's assets under management and investment performance to drum up business from wealthy clients. The commission also ordered Ms. Bennett and her firm to pay more than $4 million in fines and disgorgement.
The ruling, from Administrative Law Judge James Grimes, includes a civil penalty of $600,000 for Ms. Bennett and $2.9 million for Bennett Group.
But if we've learned anything about Dawn J. Bennett it's that after boycotting her own enforcement hearing, getting barred from the industry and paying out millions in fines, Dawn J. Bennett probably wants you to know that she has the SEC right where she wants 'em.
The SEC's case against Dawn J. Bennett [InvestmentNews]