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True Capital Management Settles with SEC

True Capital Management, a registered investment advisory firm that specialized in managing money for professional athletes, settled with the Securities and Exchange Commission relating to allegations that it received commissions for selling clients real estate investments. True Capital Management agreed to a $150,000 penalty, disgorgement of $594,897, and prejudgment interest of $76,896.

Registered investment advisory firms are only permitted to charge advisory fees, as opposed to broker-dealers who are allowed to earn commissions. The SEC’s case is based on the fact that True Capital Management was not registered as a broker-dealer.

According to the SEC’s “Order Instituting Administrative and Cease-and Desist Proceedings, Pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 and Section 203(e) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order, since at least 2012, True Capital regularly received transaction-based compensation for arranging sales to its clients of equity interests in companies whose sole purpose was owning a particular real estate property.

The SEC’s order goes on to state: “At the outset of its relationship with each of the Sellers, True Capital negotiated the percentage fee the Seller would pay to True Capital. One Seller paid 1.5%, and the other paid 3%, of the amount of capital that True Capital’s clients invested in their transactions. In other transactions where there was no compensation from the Sellers, True Capital charged its fund clients 2% of the amount of capital invested, which was primarily intended to compensate True Capital for the time its employees spent on due diligence on the transactions. True Capital did not charge transaction-based fees to its individual clients, who made the same investments. Regardless of whether True Capital received transaction-based compensation, True Capital in all instances charged its fund and individual clients advisory fees.”

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