SEC skins Stamford investment advisory for $1.6 million

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A New Canaan man and Stamford-based Aladdin Capital Management and Aladdin Capital have paid more than $1.6 million to settle allegations of misrepresenting their participation in two collateralized debt obligation investment opportunities.

Joseph Schlimm, of New Canaan and a former executive of the firm, and the Aladdins did not admit any wrong-doing in settling the charges.

According to the SEC, Aladdin Capital Management’s co-investment representation was a key feature and selling point for its Multiple Asset Securitized Tranche advisory program involving CDOs and collateralized loan obligations.

For example, the SEC said, 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.

Aladdin Capital Management and Schlim agreed to cease-and-desist orders without admitting or denying the SEC’s allegations. The Aladdin entities agreed to jointly pay $900,000 in disgorgement, $268,831 in prejudgment interest, and a $450,000 penalty. Schlim agreed to pay a $50,000 penalty.

“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.”

Rob Varnon

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