The Securities and Exchange Commission recently charged a North Carolina-based investment adviser and its former owner with making false statements about the firm’s ability to engage in algorithmic currency trading.  

To procure a contract to manage a $17 million mutual fund, Elliott Shifman, the former owner of Chariot Advisors LLC (Chariot), allegedly told the fund’s board at two presentations in 2008 and 2009 that Chariot had a proprietary algorithm to trade in currencies. At the time of these statements, however, Chariot did not possess such capacity, and instead relied on an individual trader who used technical analysis combined with “her own intuition.” After two months, Chariot terminated this trader for poor performance and subsequently employed a third party that did use a computer algorithm to trade currency. 

Although Shifman’s representations as to Chariot’s algorithmic trading ultimately became true, the SEC has taken a hard line with respect to false statements made during the “15(c) process.” This process refers to the section of the Investment Company Act of 1940 that requires investment advisers to provide a registered fund’s board with all information necessary to evaluate the fund’s advisory agreements.   

The Chariot investigation, which resulted in the recently filed civil administrative proceeding, is the latest development in an initiative by the SEC’s Asset Management Unit to police interactions between funds and their advisers, and suggests that the 15(c) process will continue to be one of the agency’s priorities. 

In the Matter of Chariot Advisors, LLC and Elliott L. Shifman, A.P. No. 3-15433 (Aug. 21, 2013).