SEC Charges Investment Adviser For Inventing a Billion-Dollar Client to Lure New Investors

Washington, D.C., March 9, 2009 — The Securities and Exchange Commission today charged a money manager with offices in New York and Rhode Island for falsely creating a billion-dollar client in order to gain credibility and attract legitimate investors.

In its complaint, the SEC charged Leila Jenkins and her firm, Locke Capital Management Inc., with making up the supposedly massive client and then repeatedly lying about its existence to land real clients. The SEC alleges that Jenkins lied to the SEC staff about the existence of the invented client and furnished the SEC staff with bogus documents in 2008, including fake account statements that she created.

Article continues below...

"Today's enforcement action demonstrates that investment advisers who lure clients with false claims will be held accountable for their actions," said George Curtis, Deputy Director of the SEC's Division of Enforcement. "In this case, the conduct was particularly egregious because Jenkins lied to the SEC staff to try to escape detection."

The SEC's complaint alleges that Jenkins made up so-called "confidential" client accounts, purportedly based in Switzerland, and repeatedly claimed the accounts contained more than $1 billion in assets that she managed. From at least 2003 to 2009, falsehoods concerning the confidential accounts were communicated in brochures, meetings, submissions to online databases that prospective clients used to select money managers, and in SEC filings. Even as Locke began to take on clients in late 2006, the assets under management of its real clients never amounted to more than a very small portion of the billion-plus dollars that Jenkins claimed to manage.

"This brazen web of lies to investors constituted a serious breach of fiduciary duty," said David Bergers, Director of the SEC's Boston Regional Office.

Besides the invented client and assets under management, the SEC's complaint alleges several other lies Jenkins and her firm told to investors. These include misrepresenting Locke's performance for years in which Locke had no clients and deceiving clients about the makeup of the firm, including the number, identity, and role of its employees.

According to the SEC's complaint, Jenkins maintains residences in Newport, R.I., and Palm Beach, Fla. In its enforcement action, the Commission alleges violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 204, 204A, 206(1), 206(2), 206(4), and 207 of the Investment Advisers Act of 1940 and Rules 204-2(a), 204A-1, and 206(4)-1(a)(5) thereunder, and is seeking a monetary penalty, disgorgement of ill-gotten gains, and a permanent injunction against future violations of the antifraud and other provisions of the securities laws.

The SEC acknowledges the assistance of the U.K. Financial Services Authority, Jersey Financial Services Commission, Swiss Financial Market Supervisory Authority, and Spain's Comision Nacional Del Mercado De Valores. The SEC's investigation is continuing.

Source: SEC