The Securities and Exchange Commission is suing investment adviser Kurt Hovan for allegedly misappropriating $178K in “soft dollars” that he claimed was used for investment research. The federal agency contends that, in fact, the money was used to cover other business-related expenses. When Kurt, as Hovan Capital Management president, was asked to provide documents supporting this, he generated bogus research reports. Meantime, the US Department of Justice is charging the 43-year-old with obstruction and mail fraud.
Soft dollars are rebates or credits. They come from brokerage firms on commissions for trades made in investment adviser’s client accounts. If the soft dollar credits are disclosed appropriately, the IA may keep the credits and use them to cover expenses related to a specific area research and brokerage services benefiting clients.
The SEC contends, however, that Kurt didn’t solely use the soft dollars for research services. Instead, $166,667 was used to pay for the salary of his brother Edward Hovan. Soft dollars were also used to pay for computer hardware and office rent. Edward and Kurt’s wife Lisa Hovan (Hovan Capital Management’s chief financial officer) are also named in the SEC’s complaint. The SEC is accusing all three of them for violating federal securities laws’ antifraud provisions. Kurt Hovan and HCM are also accused of recordkeeping violations.
The securities lawsuit also claims that conceal their soft dollar-related activities, Kurt, Lisa, and Edward set up a “Bolton Research,” which was a shell company that Edward Hovan secretly controlled. The company then billed Hovan Capital Management’s brokerage companies for research that was never conducted. Edward allegedly kicked back $65,000 of payments to Kurt and Lisa.
The allegedly false reporting to the SEC is said to have taken place during a January 2010 examination of HCM. Staff requested that the financial firm give over copies of the research reports that Bolton Research had prepared. Instead, Kurt allegedly gave the SEC phony research reports and doctored materials.
The SEC is seeking disgorgement with prejudgment interest, injunctive relief, and other financial penalties.
Securities Fraud
As you can see, securities charges and criminal charge can be filed against an investment adviser that commits securities fraud. You may want to file your own securities fraud lawsuit to recover your losses if you lost money because investment adviser misconduct was a factor.
Our securities fraud law firm knows that the thought of pursuing a financial firm to get your money back can be an overwhelming process, which is why you want to retain an experienced investment fraud lawyer that knows how to successfully pursue your recovery while protecting your rights.
SEC CHARGES BAY AREA INVESTMENT ADVISER FOR DEFRAUDING CLIENTS AND FALSIFYING DOCUMENTS DURING SEC EXAM, SEC, September 28, 2011
Belvedere investment adviser faces criminal charges in fraud case, Marin Independent Journal, September 28, 2011
More Blog Posts:
New Jersey Investment Adviser Who Pleaded Guilty to $11.5M Financial Fraud Gets 168-Month Prison Sentence, Stockbroker Fraud Blog, September 29, 2011
Investors Working with Incompetent Registered Investment Advisers Have Few Protections, Reports Bloomberg, Stockbroker Fraud Blog, August 11, 2011
Custodial Firms Get Tougher About Registered Investment Adviser Compliance, Stockbroker Fraud Blog, December 28, 2010
We know the toll that losing your investment can take on your financial security and emotional well-being. Contact our investment adviser fraud law firm today and ask for your free consultation.