The SEC charged a Connecticut-based investment adviser with falsely stating to clients that it was co-investing alongside them in two collateralized debt obligations (CDO).
The SEC’s investigation found that Aladdin Capital Management’s
co-investment representation was a key feature and selling point for its
Multiple Asset Securitized Tranche (MAST) advisory program involving CDOs and
collateralized loan obligations (CLOs). For example, Aladdin Capital Management
asked in one marketing piece, “Why is an investor better off just investing in
Aladdin sponsored CLOs and CDOs?” It then emphasized that the “most powerful
response I can give to your question is that Aladdin co-invests alongside MAST
investors in every program. Putting meaningful ‘skin in the game’ as we do means
our financial interests are aligned with those of our MAST investors.” Aladdin
Capital Management in fact made no such investments in either CDO, and its
affiliated broker-dealer Aladdin Capital collected placement fees from the CDO
underwriters.
Aladdin Capital Management
and Aladdin Capital agreed to pay more than $1.6 million combined to settle the
SEC’s charges. One of the firms’ former executives Joseph Schlim agreed to pay
a $50,000 penalty to settle charges against him for his role in the misrepresentations.
“If you sell an investment
with the pitch that you are co-investing and have ‘skin in the game,’ then you
better actually have ‘skin in the game,’” said Robert Khuzami, Director of the
SEC’s Enforcement Division. “Such a representation by an investment adviser or
broker-dealer is an important consideration to investors in complex products.”
