Why go through the hassle of filing a Form ADV and registering as an investment adviser if you are not a real firm? That was the question I was asking myself a few months ago when the Securities and Exchange Commission filed cases against a half-dozen firms for false ADV filings.
Last week the SEC won the case against Bluesky Eagle Capital Management with a default judgment. On its ghost Form ADV filing it claimed an address of 140 Broadway in New York City on the 52nd floor. That floor in the building is a mechanical floor and has no tenants. Bluesky Eagle claimed it was a public reporting company on its ghost Form ADV and listed two CIK numbers. There are no EDGAR filings for that name or CIK numbers. The SEC tried reaching the ghost firm and was unable.
Why?
“The false forms gave the impression that the entities were legitimate financial advisers, though they were sham entities. At least two of these false entities were then used to induce retail investors through social media and WhatsApp chats to purchase the stock of Chinese companies listed on NASDAQ. “
That’s according to a Department of Justice press release indicting Guanhua Su, 37, of Hong Kong. the DOJ alleges that Su and his co-conspirators created at least 10 shell entities and filed fraudulent investment adviser forms with the SEC. For Bluesky Eagle Capital Management LTD, Su allegedly induced investors to purchase stock of a NASDAQ-listed public company, promising returns of 300-500% in WhatsApp chats, telling investors that they would be fully compensated for any losses. Then the public company’s stock price collapsed, resulting in significant investor losses.
Sources:
- SEC Obtains Final Judgment against Investment Adviser Charged with Making Misrepresentations in SEC Filing
- SEC Complaint – Bluesky Eagle Capital Management Ltd.
- Hong Kong Businessman Indicted for Role in Filing False SEC Investment Adviser Forms on behalf of Sham Entities Used in Ramp-and-Dump Scheme
- SEC Charges Six Investment Advisers with Making Misrepresentations in Forms Filed with the Agency