SEC Charges Bruderman Asset Management for Failing to Disclose Misuse of Client Funds

The Securities and Exchange Commission (SEC) has taken action against New York-based Bruderman Asset Management LLC (BAM) and its principal, Matthew J. Bruderman, for their failure to disclose the misuse of client investment funds. The SEC's enforcement underscores the importance of full and transparent disclosure to safeguard investor interests.

According to the SEC's order, BAM and Bruderman advised at least 13 clients to invest a total of $6.1 million in three companies in which Bruderman had significant ownership interests and decision-making authority. However, the SEC's investigation revealed that BAM and Bruderman did not adequately disclose to clients that their investments would be temporarily diverted for other purposes. These diverted funds were used to cover BAM's payroll expenses and repay loans owed to Bruderman and affiliated companies.

Additionally, the SEC found that BAM, under Bruderman's oversight, failed to establish appropriately designed written policies and procedures for disclosing conflicts of interest. Such policies are essential in ensuring that potential conflicts are transparently communicated to clients.

Sheldon L. Pollock, Associate Director of the SEC's New York Regional Office, emphasized the crucial role of complete conflict-of-interest disclosures in maintaining investor confidence. He stated, "Full disclosure of conflicts of interest is a central safeguard for investors who place their trust in investment advisers."

Under the terms of the settlement, BAM and Bruderman neither admit nor deny the SEC's findings but have consented to the following actions:

1. Cease and desist from committing or causing violations of various provisions of the Investment Advisers Act of 1940.
2. Accept a censure as a formal acknowledgment of the violations.
3. Jointly and severally pay a civil penalty of $250,000 as part of the settlement.

This enforcement action serves as a reminder to investment advisers of the paramount importance of transparently disclosing conflicts of interest to clients. Such disclosures are fundamental to maintaining trust and confidence in the investment advisory industry, thereby safeguarding investors' interests.