The Commission has been bringing an increasing number of
actions involving regulated entities and investment advisers. The cases involve
a variety of issues ranging from the failure to invest in accord with
established procedures to miscalculating NAV. Its most recent action, however,
charges an investment adviser and its senior officials with theft from the
Detroit Police and Firefighters. SEC v Mayfieldgentry Realty Advisors, LLC, Civil
Action No. 13-cv-12520 (E.D. Mich. Filed June 10, 2013).
In early 2008 a total of $3.1 million was taken from the
Police and Fire Retirement System of the City of Detroit or PFRS to pay, in
part, for the purchase of a shopping center acquired by the principles of
registered investment adviser Mayfieldgentry or MGRA. The deal to purchase the
shopping center had been inked at the close of 2007. PFRS was not informed
about the deal nor did it consent. The money stolen would have funded benefits
for more than 100 retired police officers, firefighters and surviving spouses
and children for about one year.
MGRA at one point had about $750 million under
management. It was founded by its president and CEO, defendant Chauncey
Mayfield. He is the defendant in another Commission action centered on
"pay-to-play" allegations. He pleaded guilty to one count of conspiracy to influence
or reward local public officials in a related case. MGRA's CFO and COO are,
respectively, defendants Blair Ackman and Marsha Bass. W. Emery Mathews served
as chief investment officer and Alicia Diaz was the general counsel. Both named
defendants. Collectively the five defendants own MGRA.
PFRS' business relationship with MGRA dates to 2002 when
the firm directed the rehabilitation of a property owned by the pension fund.
As the fund expanded its business, MGRA was selected to manage its properties.
In May 2005 MGRA and PFRS executed a Real Estate Investment Advisory and Asset
Management Agreement. In connection with the management of PFRS' real estate
investments, MGRA and Mr. Mayfield managed and controlled one of the fund's
In January 2007 MGRA agreed to purchase select shopping
center properties for $4.3 million. The adviser secured a bank loan for about
$4.3 million of the purchases price. At year end with only $200,000 in cash the
firm could not fund the balance of the purchase. Accordingly, in January 2008
Mr. Mayfield directed his CFO to wire $400,000 from the PFRS account the
adviser controlled to the sellers of the shopping center properties. In
February funding of the transaction was completed when Mr. Mayfield directed
defendant Ackman to wire about $2.7 million from the PFRS checking account for
the shopping center transaction.
From 2008 through 2011 Mr. Ackman furnished the pension
fund with quarterly reports on the properties it owned. Regular report were
also provided detailing funds transferred from the bank account. None mentioned
the shopping center or the money take to pay for it.
In a May 2011 meeting the principles of MGRA, absent Mr.
Mayfiled, met to review the firm's budget. The money taken from the PFRS to
fund the shipping centers was discussed. All agreed it had to be repaid without
disclosing the fact to PFRS. Efforts to sell the shopping center properties
In a December 2011 meeting with PFRS, the adviser
presented a detailed review of the budget for the fund which included an
analysis of the advisory activities. Mr. Matthews told the group the fund had
another strong year. Ms. Diaz stressed how well the properties owned by the
fund were performing. That point was bolstered by Mr. Matthews who reported
that the internal rate of return for the PFRS portfolio was 6.8%, thus
exceeding relevant benchmarks. The PFRS representatives were not told that the
rate of return would have been significantly impacted if the theft were
considered. Indeed, no mention was made of the money taken to fund the shopping
center until just prior to the time the Commission filed its "pay to play"
action involving the firm in May 2012.
The SEC complaint alleges violations of Advisers Act
Sections 206(1) and (2). Mr. Mayfield and the firm settled with the Commission,
consenting to the entry of a permanent injunction prohibiting future violations
of the Sections cited in the complaint. In addition, they agreed to pay
disgorgement of $3,076,365.88. The remaining defendants are litigating the
case. See also Lit. Rel. No. 22720 (June 10, 2013).
ABA Seminar: Fifth
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New DOJ-SEC FCPA Guide, June 19, 2013 from 1:00 -2:30 p.m. EST. The discussion
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Counsel, General Dynamics Corporation; Steve Siegal, Senior Counsel, Northrop
Grumman Corporation; Ryan Ong, President, U.S. China Business Counsel. Live in
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Dorsey & Whitney offices. For further information please click here.
For more commentary on developing securities
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