Investment Advisor Pleads Guilty to Fraud

(SEC)

The former president of an investment adviser firm has pleaded guilty to mail fraud and obstructing an investigation by the Securities and Exchange commission.  Kurt S. Hovan, of Belvedere, California,  admitted in a plea deal that he participated in a scheme to use what’s known as “soft dollars” to pay his brother’s salary and a company kickback on rent for Hovan Capital Management, according to prosecutors.

Soft dollars are credits from a brokerage firm on commissions from client trades that can be used to pay for research that would benefit the investment advisors’ clients.  The money cannot be used for other purposes like the salary and rent payments used by Hovan.

 Advisors must also disclose the use of “soft dollar” credits and they can’t be used for the advisor’s own benefit, according to the government.

Hovan admitted to falsifying documents to make the SEC examiners believe the money was used for qualified outside research.

Hovan will be sentenced on May 15, by U.S. District Judge Richard Seeborg.  

Case:   U.S. v. Hovan,  No. CR 11-0699 RS

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