Jeff Thomas Allen, the former CEO of Advanced Investments Management (AIM), a Pittsburgh, Pa..-based firm that once managed more than $6 billion in pension assets, has agreed to pay a $175,000 fine to settle a Securities and Exchange Commission allegation of fraudulent trading. Allen, who has not admitted wrongdoing, has been barred from trading.
As a result of the firm's improper trading, client losses totaled more than $415 million. The SEC claimed that as the S&P 500 Index declined almost 29% between April and July 2002, Allen and James Barlow Smith, AIM's vice president of equity trading, increased the market exposure of clients' accounts to levels higher than what clients had contracted. Most clients required a 100% market exposure in their to achieve returns parallel with those of the S&P. The market exposure of some accounts reached 500%, the SEC complaint noted. The SEC is seeking an injunction and a fine against Smith. Neither Allen nor Smith could be reached for comment.
"Investment advisors have the highest duty under the law to act in the interests of their clients and provide full, fair disclosure of material facts to clients," said David Horowitz, assistant district administrator for the SEC's Philadelphia office. "[Allen and Smith] did trading far outside of what was authorized and exposed their investments to a market exposure that exceeded what clients had contracted."
The SEC has filed an administrative proceeding against William Belko, director, SVP and portfolio manager at AIM. Belko had knowledge of the improper behavior, but never disclosed the information to clients, or attempted to correct misrepresentations in monthly account statements, according to the SEC.
Account statements sent to clients understated market exposure levels and made it seem that the firm had been complying with the client advisory agreements that limited exposure.