• Registered Investment Adviser Faces Fraud Charges
  • June 6, 2014 | Authors: Peter D. Fetzer; Terry D. Nelson
  • Law Firms: Foley & Lardner LLP - Milwaukee Office ; Foley & Lardner LLP - Madison Office
  • The SEC filed fraud charges in a recent complaint filed in federal court against an Ohio-based investment advisory firm, Professional Investment Management (“PIM”) and its president and chief compliance officer, Douglas Cowgill, for allegedly concealing a shortfall of approximately $700,000 in client assets and then attempting to deceive the SEC’s examiners from detecting the shortfall.

    During a routine examination by the SEC of the books and records of PIM, the SEC attempted to verify the existence of client assets. In account statements sent to clients by PIM, it was reported that PIM held about $7.7 million in a money market fund although only $7.0 million of client assets was actually documented as having been invested in the fund. During the SEC’s examination of the adviser, Cowgill attempted to disguise the shortfall by entering a fake trade in the firm’s account records. Cowgill falsified records he provided to the staff and apparently transferred funds from another account at a financial institution which also constituted client assets, to eliminate the shortfall in the money market account. The transfer of the shortfall amount between the accounts by Cowgill was meant to avoid detection by the staff. The SEC also asked the federal court to impose an asset freeze of the advisory firm in order to further protect client assets.

    PIM currently has about 325 clients with $120 million of assets under management. It was registered with the SEC from 1978 until September, 2013 when it withdrew its SEC registration. The SEC’s examination was conducted, in part, because for the last four years, PIM had apparently not complied with the “custody rule” which required for each of those years, an independent verification of client assets.

    The SEC’s complaint charges PIM and Cowgill with violating the anti-fraud, registration and custody provisions under the Investment Advisers Act of 1940. The motions made by the SEC included a request for the Court to issue a preliminary injunction.