SEC alleges firm inflated AUM to attract clients

A Chicago investment adviser and its principal lured investors into two funds of hedge funds the firm managed by “grossly exaggerating” the firm’s assets under management and making other false and misleading statements, according to the Securities and Exchange Commission.

According to a complaint filed by the SEC’s enforcement division, Calhoun Asset Management LLC and principal Krista Lynn Ward told one asset management firm — 20 clients of which invested in the Calhoun funds — that Calhoun had grown from $27 million in AUM in 1999 to $200 million in 2006. In fact, the firm had $3 million in assets in 2006 — at most, the SEC said.

Ms. Ward also filed numerous false Form ADVs for Calhoun, including one in February 2009 that said the firm had $79.8 million in assets under management, when it really had $7 million, the SEC said. She also misrepresented the assets of another Chicago investment adviser where she was the chief executive, according to the complaint, which was filed last Thursday.

The case comes as the commission is waging a campaign to weed out investment advisers who provide inaccurate information on the adviser registration forms.

Specifically, the SEC is digging for inaccuracies with regard to information used by investors.

This particular case, however, is not the result of that crackdown, said an SEC official.

“We believe it’s important to take action when an adviser is inflating assets under management in an attempt to attain clients,” said John Sikora, assistant director of the Chicago regional office.

The SEC is seeking a cease-and-desist order against the firm and Ms. Ward.

John Muldoon, an attorney for Ms. Ward and Calhoun, did not return a call seeking comment.

Ms. Ward launched the two funds of funds in 2006, the SEC said. She marketed herself as an experienced hedge fund manager, “despite having no experience in portfolio management,” the SEC complaint said.

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