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SEC charges Chicago-based investment adviser and owners with fraud

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The Securities and Exchange Commission has charged Chicago-based GEI Financial Services and its owners, Norman Goldstein and Laurie Gatherum, for defrauding their advisory clients — including the GEI Health Care Fund 2001 — by taking at least USD147,000 in excessive fees and capital withdrawals from the fund since 2009.

According to the SEC’s complaint filed in the US District Court for the Northern District of Illinois, Goldstein and Gatherum failed to disclose to investors in the Health Care Fund that their investment adviser removed performance hurdles — including a bench mark and high water marks — in order to draw additional fees.

The SEC further alleges that GEI Financial, Goldstein, and Gatherum never told their advisory clients that the State of Illinois stripped Goldstein of his securities registrations in 2011, barring him from providing investment advisory services in Illinois. Even after losing his registration as an adviser, Goldstein continued to make all investment decisions for GEI Financial’s clients and for clients of GEI Management — an affiliated unregistered investment adviser owned by Goldstein and Gatherum.

The complaint also alleges that Goldstein and Gatherum caused GEI Financial to violate numerous compliance rules and other requirements of the Investments Advisers Act of 1940. GEI Financial never had adequate written compliance policies and procedures or a written code of ethics even though SEC examiners alerted the firm and its owners of this deficiency in 2008. GEI Financial also has not updated its Form ADV — a report required by all SEC-registered investment advisers — since November 2008, and never prepared or distributed a required brochure — called a Form ADV Part 2 — to clients.

The SEC seeks permanent injunctions, disgorgement including prejudgment interest, and civil penalties from GEI Financial, Goldstein, and Gatherum.

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