The SEC announced that it has settled charges against New York registered investment advisor Momentum Advisors LLC, its former Chief Compliance Officer, Alan J Boomer, and its former Chief Operating Officer, Tiffany Hawkins.
Hawkins was accused of paying herself from the portfolio companies of a Momentum-advised fund she and Boomer managed, while Boomer was charged with negligently overseeing her. Momentum was also accused of failing to have policies and procedures in place to detect and address the fraud.
To resolve the charges, Boomer agreed to a $80,000 civil penalty and 12-month supervisory suspension, while Hawkins will pay $200,000 and be subject to an associational bar.
Momentum itself agreed to pay a $235,000 penalty and a censure, with the SEC noting its remedial efforts.
“Laundered” money
In 2020, Boomer and Hawkins established the Franklin Morgan Fund to purchase and develop dry cleaning franchises, raising $5,000,000 from Momentum’s advisory clients. Hawkins held a debit card linked to franchises for their business expenses, and played a role in their day-to-day operations, while Boomer directly oversaw Hawkins.
The SEC’s complaint states that from August 2021 through February 2024, Hawkins misappropriated over $233,000 from the laundry franchises. Hawkins used the money for personal luxury purchases and caused one of the franchises to pay her $24,000 beyond her authorized salary.
The complaint further states that Hawkins concealed the misappropriations from Boomer, Momentum staff, and the SEC. Among other deceptions, she stated that the luxury clothing purchased through the dry-cleaning franchises were meant to as replacements for lost items, and that vacations she took were legitimate business expenses.
The complaint also stated that Boomer used the fund to acquire a company both Boomer and Hawkins controlled, and used the fund to pay a business debt that should have been paid by the acquired company, leading to an unearned benefit of $346,904.
Hawkins ultimately resigned from Momentum in March 2024, and Momentum refunded the franchises the misappropriated money.
Momentum has since replaced boomer as Managing partner and CCO, brought on a new chief financial officer, and implemented policies regarding business expenses.
Supervisory issues
According to the SEC, Momentum did not have any policies or procedures in place addressing the operation of portfolio companies, and no review or approval processes for portfolio company debit card use.
And when Hawkins first admitted that she used franchise money for personal expenses, Momentum did nothing to reassess its policies and procedures or limit her access to franchise funds.
As Hawkins’ direct supervisor during the time, Boomer had ultimate responsibility for overseeing her actions. The SEC stated that he missed significant red flags indicating misappropriation, such as the franchises’ increased expenses reports and her excessive travelling.
Rule violations
Momentum Advisors was accused of violating Section 206(4) of the Advisers Act and Rules 206(4)-7 and 206(4)-2 thereunder, requiring written compliance procedures, and the distribution of annual audited financial statements prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) to fund investors.
Boomer was accused of violating Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder, covering Custody of funds or securities of clients by investment advisers, and Section 203(e)(6) of the Advisers Act, covering the obligation to reasonably supervise.
Hawkins was accused of violating Sections 206(1) and 206(2) of the Advisors Act, coving fraud and deceit in investments.
