In the Matter of Larry C. Grossman and Gregory J. Adams, Admin. Proc. No. 3-15617. On November 20, 2013, the SEC announced it issued an Order Instituting Administrative Cease-and-Desist Proceedings (“OIP”) against investment advisers Larry Grossman and Gregory Adams. The OIP charges Adams and Grossman with fraud and with violating the “custody rule” that requires investment advisory firms to establish specific procedures to safeguard and account for client assets. According to the OIP, Adams and Grossman solicited clients to invest in funds controlled by Nikolai Battoo, whom the SEC charged with fraud in 2012. The SEC alleges that Grossman and Adams did not tell clients that Batoo paid them collectively more than $4 million to direct investors to his investment funds. Grossman and Adams told investors that the investments were safe and suitable for retirees. In reality, Battoo’s funds were risky and did not have many of the attributes promised to investors. The SEC also alleges that Grossman and Adams did not investigate several warning signs about Battoo and his funds. According to the OIP, Grossman and Adams also aided and abetted their investment firm Sovereign International Asset Management’s violations of the custody rule by telling clients to transfer investment funds to a bank account controlled by a related entity. Grossman and Adams pooled clients’ money in this bank account before investing it in Battoo’s funds. As a result, Sovereign failed to comply with the custody rule, which requires an investment adviser to comply with certain procedures to verify and safeguard client assets. The OIP charges Grossman and Adams with violating Section 17(a)(2) of the Securities Act, Section 15(a) of the Exchange Act of 1934, and Sections 206(1), 206(2), 206(3) and 207 of the Investment Advisers Act. They are also charged with aiding and abetting violations of Section 15(a) of the Exchange Act and Section 206(4) of the Advisers Act and Rules 204-3 and 206(4)-2.
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