Saturday, April 20, 2013

Investment Puffery Taken to an Extreme


Investment Puffery Taken to an Extreme

In institutional money management, size matters.  Prospective clients like to know that you’re managing a bunch of money for other institutions.  Enhancing the appearance of one’s assets is a standard marketing ploy.  As CIO for North Carolina, I was fed a steady diet of exaggerated claims.  Managers all too often told me that their marketing efforts were gaining impressive traction or that they had strong relationships with certain other important institutions.  After I made couple of quick phone calls, these assertions evaporated.

Overvalued Seller (1999)

Umesh Tandon, the founder, CIO, and compliance officer for Simran Capital Management, took puffery to another level.  In 2008, he deliberately inflated the assets managed by Simran in order to win a mandate from CALPERS.  He then turned around and exaggerated his relationship with CALPERS to win more business.  CALPERS had established a minimum threshold of $200 million in order for a firm to do business with the pension plan.  In fact, Simram only managed $70 million at the time. Simram won the mandate, and things were going along swimmingly until an SEC examination unearthed discrepancies in the assets under management at Simram in its regulatory filings.[1]

The firm ceased operation in 2012.   For his efforts, Mr. Tandon received a lifetime ban from the securities industry and agreed to pay CALPERS $20,018 plus interest, as well as a $100,000 fine.

I’m not expecting marketing pitches to become more conservative because Umesh Tandon got caught in a lie.  I suspect if the SEC rummaged around, they’d find a bunch more firms who have exaggerated the size of their businesses.   Of course, dishonesty in the marketing process is not the biggest sin in money management.  The industry’s biggest sins – the failure to add value and the tendency to charge too much – are perfectly legal as long as they are properly disclosed.


[1] http://www.sec.gov/litigation/admin/2013/ia-3586.pdf

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