SEC Actions This Week: Trying Really Hard to Be ScandalousApr29

By Ann C. Logue

In a world of clumsy insider trading and pump-and-dump schemes, it’s always interesting when professional money managers come up with a new way to defraud investors. This week brought SEC actions involving two spectacular scandals. The biggest headlines were written about Archegos Capital Management, which allegedly operated a $36 billion market manipulation scheme. The firm blew up in March of 2021; the losses were huge but not systemic. The SEC charged the firms principals with using total return swaps to manipulate stock prices.

Fewer pixels were expended on the saga of Medley Asset Management, although its story is also complicated. Medley operated business development companies, which are 40 Act funds of business loans that exploded in popularity after the financial crisis as investors chased yield. The company was based in New York, although its web site features a photo of the Chicago skyline and claims $1.9 billion in AUM in one place and $2.9 billion in another. This flagrant inattention to detail seemed to extend to every aspect of the firm’s operations except for the co-CEOs’ compensation agreements. The SEC charged the firm with intentionally misleading investors, and the folks involved will pay a $10 million fine. 

Archegos and Medley are now bankrupt. 

So many financial frauds seem obvious. It’s hard to have sympathy for someone who takes a phone call from a boiler room and chases after a penny stock, even though those victims often cannot afford the losses and the perpetrators calibrate their offers to their marks. The big frauds involve victims who should know better and who often enable the perpetrators. Bill Hwang of Archegos had a history of rule violations, and the Taub Brothers who ran Medley had a track record of terrible performance. This week, the SEC also announced that inspector general Carl W. Hoecker would be retiring. Rebecca Sharek, the current Deputy Inspector General for Audits, Evaluations, and Special Projects, will replace him. The commission will still be understaffed. Too bad because there’s a lot of bad behavior out there.