The SEC has charged an investment advisory firm and two of its executives with selling unsuitable investments to pension funds for Atlanta’s police and firefighters, transit workers and other employees.
According to the agency, Gray Financial Group of Atlanta, Laurence O. Gray, its founder and president, and Robert C. Hubbard IV, co-CEO, were charged with fraud after allegedly breaching their fiduciary duty by steering public pension clients into alternative investments that did not meet the requirements of Georgia state law even while they knew the investments were unsuitable.
After recommending investments in its fund called GrayCo Alternative Partners to the city of Atlanta’s Firefighters’ Pension Fund, General Employees’ Pension Fund, and Police Officers’ Pension Fund as well as the MARTA/ATU Local 732 Employees Retirement Plan, Gray Financial Group has collected more than $1.7 million in fees from the pension fund clients as a result of the improper investments.
Georgia state law does allow most public pension funds in the state to buy alternative investment funds, but there are certain restrictions that must be met before they can do so. The Georgia public pension fund may not exceed more than 20 percent of the capital in an alternative investment fund, but two of the pension funds’ investments failed to meet that condition.
In addition, at the time of a Georgia public pension fund’s investment in an alternative fund, there must be at least four other investors in the same fund, and there must also be at least $100 million in assets in an alternative fund at that time. GrayCo Alternative Partners met neither of these conditions.
At least one client asked specifically about the investments’ compliance with Georgia law, and the SEC’s Enforcement Division alleged that Gray Financial Group and Gray made material misrepresentations to cover up noncompliance. They also misrepresented the number and identity of prior investors in the fund.
A public hearing will be scheduled before an administrative law judge. The SEC’s investigation is ongoing.
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