Securities Regulation Daily Wrap Up, ENFORCEMENT—SEC orders investment adviser principal to disgorge $2 million over conflicted transactions, (Feb 6, 2024)
Opaque and overlapping interests at two advisory firms facilitated fraud in which clients’ own funds were used to service the debt owed to them.
The SEC imposed financial sanctions against New York resident David Bodner for defrauding investment adviser clients by engaging in conflicted transactions at two advisory firms and failing to make required disclosures in violation of the Advisers Act. Bodner agreed to pay $2 million in disgorgement plus prejudgment interest and a $180,000 penalty. The SEC also imposed a cease-and-desist order and three-year industry bar (In the Matter of David B. Bodner, Release No. 40-6540, February 2, 2024).
Conflicted transactions. According to the SEC, Bodner used opaque overlapping interests in two advisory firms to fraudulent ends.
Bodner was a principal of an investment advisory business known as Platinum Partners. While he had no official title and his name did not appear on the firm’s publicly filed Form ADV, he held majority interests along with others in two Platinum investment advisers as well as limited partnership interests in Platinum’s flagship funds.
When Platinum ran into liquidity problems, Bodner worked with two insurance executives to create Beechwood, a group of entities providing reinsurance and investment advisory services.
With Bodner’s help, Beechwood invested a significant portion of its clients’ assets in Platinum funds and related portfolio companies, and in other ventures in which Bodner and associates had undisclosed personal interests that created conflicts of interest. Bodner participated in transactions in which Beechwood clients provided liquidity to Platinum funds and related fund portfolio companies and helped those entities avoid defaults on existing loans issued by Beechwood clients.
In some conflicted transactions, Beechwood clients’ own funds were used to service the debt owed to them.
Bodner did not ensure that Beechwood disclosed these conflicts to its clients. Bodner also did not disclose his previous misconduct including a 1992 criminal conviction for fraud in connection with taking his Series 7 exam, a 1998 SEC consent order involving unlawful transactions in unregistered securities, and a 2005 FDIC consent order alleging involvement in an unlicensed bank holding company without prior regulatory approval.
Violations and sanctions. The SEC order found that Bodner willfully violated Advisers Act Sections 206(1) and 206(2) and was a cause of Platinum’s violations of Advisers Act Sections 206(1), 206(2) and 206(4) and Rule 206(4)-8. Bodner consented to the order without admitting or denying the findings.
Bodner agreed to pay $2.06 million in disgorgement plus prejudgment interest and a civil monetary penalty of $180,000. He also agreed to a cease-and-desist order and three-year bar on industry association with right to reapply.
The release is No. 40-6540.
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