New York Securities Lawyer Blog
On Wednesday, November 20, 2013, the Securities and Exchange Commission (“SEC”) filed an Order Instituting Administrative Cease-and-Desist Proceedings (“SEC Order”) against Larry C. Grossman and Gregory J. Adams, alleging that while Grossman and Adams were associated with the investment advisory firm Sovereign International Asset Management, Inc. (“Sovereign”), they implemented investments that were “risky, lacked diversification, and lacked independent administrators and auditors.” Sovereign was a small investment advisory firm run by Grossman that was based out of Clearwater, Florida. On October 1, 2008, Grossman sold Sovereign to Adams, a financial industry professional from Palm Harbor, Florida, and thereafter, Adams assumed Grossman’s role as Managing Partner and sole owner of Sovereign.
The SEC Order states “Sovereign and Grossman targeted retirees seeking to invest their money offshore, and most of Sovereign’s clients were retired individuals with self-directed [Individual Retirement Accounts].” Grossman and Adams funneled their clients’ investments almost exclusively through offshore accounts managed or controlled by Nikolai Simon Battoo of BC Capital Group, S.A. and BC Capital Group Limited (collectively referred to as “BC Capital”), regardless of the investors’ investment objectives. BC Capital was not registered with the SEC. In 2008, Sovereign reported $85,000,000 in assets under management. Sovereign advertised that they “use[d] an extensive investment selection process that [was] not only qualitative but incorporate[d] a significant due diligence process as well.” However, from August 2003 until at least October of 2008, the firm surreptitiously decided to invest the majority of its clients’ funds with Battoo and BC Capital. In order to execute these investments, Grossman formed two limited liability companies with identical names (Anchor Holdings, LLC), but registered one in Nevis and the other in Florida. He instructed clients to transfer money to the Florida company, and subsequently pooled all the funds into one account without their knowledge. These account holdings were then transferred to Anchor Holdings, LLC’s Nevis company. Because of the identical names of Anchor Holdings, LLC in Nevis and Florida, the clients never noticed that their money was being held by the wrong entity. Clients never received any custodian statements regarding the account held by the Florida company, and an examination of Sovereign was never conducted during this time period. Rather, the clients simply received statements regarding their investments at BC Capital.
According to the SEC Order, Grossman and Adams failed to disclose their commissions, including referral and consulting fees from Battoo, which totaled approximately $4,300,000. Similarly, Battoo was charged in a separate SEC Enforcement action in September 2012 in connection with this case.
Sovereign International Asset Management, Inc. filed for Chapter 7 Bankruptcy on June 28, 2012, and was administratively dissolved by the courts in September of 2012. Grossman and Adam’s Investment Advisor registration was revoked on February 6, 2013, and Adams filed for Chapter 7 Bankruptcy on May 15, 2013.
Lax & Neville has extensive experience in successfully prosecuting claims on behalf of customers and investors who have suffered losses. Additionally, Lax & Neville LLP has nationally represented small broker-dealers, investment advisers, financial services professionals and securities industry companies in regulatory matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.