SEC freezes assets of Chicago-area investment advisor | AccountingWEB

SEC freezes assets of Chicago-area investment advisor

The Securities and Exchange Commission has obtained an emergency court order freezing the assets of a Chicago-area investment adviser and two of its principals who are alleged to have misappropriated more than $4 million in client assets by transferring them to third parties, and incorrectly reported the net asset and other investment values to investors.

The SEC charged The Nutmeg Group LLC, owner and managing member Randall Goulding, and chief compliance officer David Goulding for misappropriating client assets, making misrepresentations to their clients, failing to comply with Nutmeg's custodial obligations, and failing to keep required books and records. The Honorable Judge William J. Hibbler of the U.S. District Court for the Northern District of Illinois temporarily enjoined the defendants from violating antifraud, custodial, and recordkeeping provisions of the federal securities laws and imposed a freeze of Nutmeg's assets.

"Prompt enforcement action is necessary when an investment adviser has breached its fundamental duties to investors, as alleged here. It's inconceivable that an investment adviser cannot immediately substantiate the investments its clients hold," said Merri Jo Gillette, Director of the SEC's Chicago Regional Office.

According to the SEC's complaint, Northbrook, IL-based Nutmeg serves as the general partner or investment adviser to 15 unregistered investment pools and claims to have assets under management of more than $32 million. Nutmeg and the Gouldings misappropriated more than $4 million in client assets by transferring them to third parties, and did not fully document the funds' investments. The SEC alleges that they improperly commingled fund assets and cannot value the funds' holdings, and as a result, net asset and other investment values have been incorrectly reported to investors. Nutmeg also has failed to keep required books and records or keep assets with qualified custodians, which has further put client funds at risk.

In addition to the emergency and interim relief that has been obtained, the SEC seeks a final judgment permanently enjoining the defendants from violating certain provisions of the federal securities laws and ordering them to pay disgorgement of ill-gotten gains and financial penalties. The SEC also seeks disgorgement from six relief defendants for improperly receiving fund assets.

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