Alladin Capital Management LLC and its brokerage agreed to pay $1.6 million to settle U.S. regulatory claims that the investment adviser falsely told clients it was co-investing with them in two financial products.
The Stamford, Connecticut-based firm from 2006 to 2010 marketed two collateralized debt obligations to a municipal retirement plan, a pension fund and an individual entrepreneur with claims that the firm would co-invest in the same products, according to an order filed by the Securities and Exchange Commission in administrative court today. Alladin Capital LLC, the firm’s affiliated brokerage, collected placement fees from the CDO underwriters.
Joseph Schlim, Alladin’s former chief financial officer, made sales calls to potential clients and negotiated with underwriters about the amount of equity that Alladin could place with customers or purchase for itself, the SEC said. Schlim, who agreed to individually forfeit $50,000 to resolve the claims, and Alladin didn’t admit or deny wrongdoing, according to the order.
“If you sell an investment with the pitch that you are co- investing and have ‘skin in the game,’ then you better actually have ‘skin in the game,’” SEC Enforcement Director Robert Khuzami said in a statement. “Such a representation by an investment adviser or broker-dealer is an important consideration to investors in complex products.”
The investments in question were the Fortius II Funding Ltd. and the Citius Funding Ltd. CDOs, the SEC said.
CIFG Assurance North America Inc. sued Goldman Sachs Group Inc. (GS) in New York State Supreme Court this month over the Fortius II CDO, accusing the bank of fraudulently inducing the insurer to provide a policy on a credit default swap guaranteeing $325 million of notes in the vehicle. Michael DuVally, a spokesman for the bank, declined to comment.
“Along with other steps recently taken by Alladin, the settlement with the SEC is a continuation of Alladin’s strategic plans to reposition its business,” the company said in a statement today.
Schlim’s attorney Jack Sylvia said his client “is pleased to have this matter behind him.”
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