On March 15, 2019, the Securities and Exchange Commission (the “SEC”) took cease and desist action against Talimco, LLC (“Talimco”), a private fund manager, and Grant Rogers, its Chief Operating Officer (“Rogers”), finding that Talimco had sold mortgage participations owned by collateralized debt obligations (“CDOs”) that it managed to a fund (the “Fund”) also managed by Talimco. The CDO documents required in the first instance that three bids were to be obtained for assets sold by the CDOs, but the SEC found that Rogers had convinced at least two other market makers to bid on the mortgage participations by telling them that they would not win the bid. Rogers then invested in the Fund, which ultimately sold the mortgage participations for a profit. Rogers profited personally from this and Talimco realized substantial fees on the sale. The SEC found that Talimco and Rogers owed the CDOs a fiduciary duty, which they violated by failing to obtain real bids that would have been almost certainly higher than the sale price to the Fund. They thus violated Section 206(2) of the Investment Advisers Act of 1940 prohibiting fraud or deceit on a client. Rogers was suspended for 1 year and fined $65,000. Talimco was required to disgorge $74,000 plus interest and fined $325,000. The case indicates that the SEC is still trying to make an example of private fund and CDO managers who are found to have illegally crossed assets at a profit between their management responsibilities.
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