SEC Charges Three Investment Adviser Firms with Improper Registration in Wyoming

On February 4, 2015, the SEC issued cease and desist orders against three investment advisers that fraudulently maintained registration with the SEC by listing Wyoming as their principal place of business on their Forms ADV. These three incidences highlight Wyoming’s unusual landscape for investment advisers.

In order to explain the uniqueness of these orders, some background on investment adviser regulation will be provided. Originally, investment advisers were prohibited from registering with the SEC under the Investment Advisers Act if it managed under $25 million in assets or met a designated exemption. In July 2011, that threshold was increased to $100 million. If an investment adviser does not meet or exceed the $100 million threshold, it is still required to register with the states in which they maintain their principal place of business. Wyoming is unique in that it does not regulate investment advisers. Any investment adviser with its principal place of business in Wyoming must therefore, according to the amendments to Section 203A of the Investment Advisers Act, register with the SEC.

The three firms included in these orders, New Line Capital, Wyoming Investment Management Services, and Arete Ltd., were alleged to have willfully misrepresented that Wyoming was their principal place of business. Consequently, each firm was ordered to cease and desist from committing any further violations of the Advisors Act, among other things.

New Line Capital, through its owner, was reorganized as a Wyoming entity in March 2012. On its Form ADV, it claimed that its principal place of business was in Wyoming and was thus able to register with the SEC. New Line Capital made these same representations in up until its Form ADV was filed in March 2014. In its order, the SEC alleged that the owner did not direct, control, or coordinate activities from Wyoming, but instead used his residence in New Mexico as the base of the company’s operations. The owner allegedly never met clients in Wyoming and only rarely used his rented office space there.

Moreover, the SEC alleged that owner had not maintained books and records in Wyoming since August of 2013 and falsely inflated New Line Capital’s assets under management in the firm’s Forms ADV by adding certain assets that were not securities portfolios. The owner also allegedly failed to maintain accurate and true financial and trading records relating to the firms advisory business.

The SEC held the owner responsible for willfully aiding and abetting New Line Capital in its violations of the Advisers Act. Along with the cease and desist order, New Line Capital and the owner were ordered to pay the SEC $10,000 within 10 days of the entry of the order.

Wyoming Investment Management Services, LLC (“WIMS”) was also a company organized in Wyoming with rented office space and a bank account in Cheyenne, Wyoming. The owner filed its initial registration with the SEC on February 15, 2013, stating that its principal place of business was in Cheyenne. WIMS listed Cheyenne as its principal place of business up until its February 12, 2014 Form ADV was filed. Similar to the owner of New Line Capital, the owner of WIMS was alleged to have used his residence in Collins, Colorado to conduct WIMS’s operations. The SEC further alleged that the owner did not meet with clients in Cheyenne and infrequently used its office space there in 2013. Also, WIMS’s books and records were maintained in Santa Fe, New Mexico throughout 2013.

Along with the WIMS’s willful violations of the Advisers Act and the owners willful aiding and abetting in those violations, both have taken steps to make WIMS’s principal place of business Cheyenne, Wyoming. Both WIMS and the owner were ordered to pay the SEC $10,000 within 10 days of the entry of the order.

Lastly, Arete Ltd. similarly filed its initial registration with the SEC, stating thats its principal place of business was in Cheyenne, Wyoming on November 27, 2012. Arete Ltd. continued to list Cheyenne as its principal place of business up until its Form ADV was last filed on October 2, 2013. In February, 2013 the Securities Commissioner of Colorado filed a complaint against the chief compliance officer of Arete, Ltd. for carrying out a scheme to defraud investors. On December 30, 2013, an order was entered against the CCO of Arete, Ltd. The company, however, never disclosed the complaint filed against it or the order entered against it in its subsequent Form ADV filings. Moreover, the SEC alleged that Arete’s operations were conducted out of California, not Wyoming.

The SEC is set to have public administrative and cease-and-desist proceedings to further determine Arete’s violations and the appropriate remedies no later than 60 days from the order.

Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds and issuers of securities, among others. Our regulatory practice group assists financial service providers with the complex issues that arise in the course of their businesses, including compliance with federal and state laws and rules. Please visit our website for more information.

Contact Information