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Alternative Market Briefing

SEC Charges Connecticut adviser for "skin in the game" misstatements about CDOs

Tuesday, December 18, 2012

Bailey McCann, Opalesque New York: The Securities and Exchange Commission (SEC) today charged a Connecticut-based investment adviser with falsely stating to clients that it was co-investing alongside them in two collateralized debt obligations (CDO). According to the order, former firm executive Joseph A. Schlim and the company Aladdin Capital Management made the collateralized CDOs a major point of the firm's Multiple Asset Securitized Tranche (MAST) advisory program involving CDOs and collateralized loan obligations (CLOs), but the firm in fact made no investments in the CDO.

In the SEC’s orders instituting settled administrative proceedings, Aladdin Capital Management’s clients committed to investing in upcoming CDO deals that would be managed by the firm. Aladdin Capital Management inaccurately informed a municipal retirement plan, a pension plan, and an individual entrepreneur that it would co-invest alongside them. After those three clients invested in the two CDOs, Aladdin Management erroneously continued to inform clients from 2007 to 2010 that the firm had skin in the game.

Schlim was involved in the MAST program on a day-to-day basis and made calls advising potential clients of this co-investment even though he new full well that the firm was not actually co-investing. Aladdin Capital Management a......................

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