Red-Faced at Red County – SEC Charges Chip Hanlon with Fraud


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Chip Hanlon , Obersturmbahnfuhrer at Red County, brags on his website that he is a member of American Mensa, that organization of really, really smart people.

He also boasts that he is a really, really successful big time investor.

Ruh-Roh. Not so much, apparently.

From the LA Times

The U.S. Securities and Exchange Commission accused money manager Charles P. Hanlon and his Southern California investment advisory firm of fraud, alleging they claimed to manage more than $1 billion in assets when the real amount was as low as $9 million.

Hanlon, president of Delta Global Advisors Inc., was charged by the agency Thursday with inflating assets, making false statements and failing to disclose material information to existing and prospective investors.

Hanlon could not be reached for comment.

Further in the article, there are details about what Hanlon and his company said in filings to the SEC, and in actual amounts they managed.

From 2007 through 2008, Delta’s filings indicated that it was managing $656 million to $1.49 billion, according to the SEC. The actual amount rarely exceeded $25 million and was as low as $9 million, the agency said in a court filing.

Such a harsh word,  fraud.

Yet so unsurprising.

Update: Details from the actual SEC complaint make compelling reading, and show why Hanlon really needed to make a bundle from Meg Whitman’s campaign. This is not some one-off violation of rules, but a compelling read.

RESPONDENTS FAILED TO MAKE REQUIRED DISCLOSURES ABOUT DELTA’S POOR FINANCIAL CONDITION AND HANLON’S DISCIPLINARY

HISTORY

13. In August 2009, Delta’s financial condition was seriously impaired because it had minimal liquid assets and several overdue bills. On November 13, 2009, Delta informed Commission examination staff by letter that it was “in the process of communicating with all clients on this matter and will have completed this process by December 9, 2009.” However, contrary to Delta’s representations, Hanlon never disclosed Delta’s financial condition to any clients.

14. On June 28, 2010, a default judgment was entered against Delta and Hanlon in a lawsuit filed by one of Delta’s clients relating to Delta’s advisory services. The lawsuit alleged breach of fiduciary duty, negligence, failure to supervise, negligent misrepresentation, and breach of contract, all relating to Hanlon and Delta’s activities as investment advisers. Among other things, the plaintiff claimed that Delta and Hanlon (i) did not follow plaintiff’s investment guidelines and objectives, and (ii) failed to disclose certain conflicts of interest. The judgment ordered Delta and Hanlon to pay $353,706 indamages. Neither Delta nor Hanlon has satisfied the judgment. In addition, Delta did not disclose the existence of this judgment to Delta’s clients or its precarious financial condition as a result of the unsatisfied judgment, even though it was required to do so.

15. In June 2010, a FINRA arbitration panel ordered Hanlon to pay compensatory damages of $272,290 and $5,500 in fees arising from a complaint against him alleging breach of contract, slander, and fraud. Hanlon failed to comply with this arbitration award and consequently on June 29, 2010 FINRA suspended Hanlon from acting in any registered capacity. Delta did not disclose this disciplinary action to its clients, even though it was required to do so.

And for the final little bit of ignominy from the SEC complaint, there is the firm who was served as Hanlon’s lawyer.

Sergio J. Siderman, Esq.
L.A. Bankruptcy Associates
707 Wilshire Blvd., Suite 5150
Los Angeles, CA 90017
(Counsel for Delta Global Advisors, Inc. and Charles P. Hanlon)


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