Beverly Hillbillies Ciphering for Assets Under Management

It was a case of math failure. Where exactly should that decimal place go? The Barthelemy Group of New York and New Jersey calculated assets under management as $26.28 million. But it looks like the decimal point was in the wrong place and the firm actually had $2.628 million under management.

Evens Barthelemy, the founder, sole owner, managing director, and chief compliance officer of the firm, wanted to be registered with the SEC and did so in June 2011. At the time, that meant having at least $25 million under management. Otherwise, the firm would have to register with the state regulators. (Unless the firm would have to register in at least 30 states, which would then allow the firm to register with the SEC instead of the states.)

On the firm’s Form ADV, Barthelemy stated that the firm had $26.5 million in assets under management and between seventy and ninety accounts. In the first four months after registration, the firm had no client assets that would qualify for AUM, never had more than $5 million in AUM, and only had about 30 clients at its peak.

This all fell apart during an SEC exam.

In response to an initial request from exam staff, Barthelemy provided an Excel spreadsheet listing all his clients and the assets he managed for each, which assets he totaled as $26.28 million. The exam staff later learned from BG’s independent custodian, however, that BG’s assets totaled only $2.6 million, and that the assets in BG’s spreadsheet were inflated ten-fold. Barthelemy had downloaded client account values from the custodian’s online platform, and then manually moved the decimal point for each client one place to the right.

That should be enough, but the SEC also had a laugh after looking at the compliance manual for BG. Barthelemy apparently prepared his firm’s 2010 written Compliance, Supervisory Procedures and Policies Manual by copying  a 2009 version he obtained from his prior employment at a registered broker-dealer. He merely substituted the term “investment adviser” for “registered representative” and substituted “client” for “customer.” That means he omitted most of the requirements under the Investment Advisers Act.

On one hand I feel bad for Barthelemy. I would guess that he was trying to switch his business model from a commission-based broker dealer to the AUM fee model as an investment adviser, better aligning his interests with his clients. But he clearly failed to seek out good advice on what he would need to legally do under this new business model.

If he felt he was better serving his clients, it’s very hard to justify the outright fraud of changing a spreadsheet and handing that lie to an SEC examiner.

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