## Facts

- Noonan Capital Management, LLC (NCM) operated as a Georgia-based investment adviser and registered with the SEC beginning in March 2009.
- Timothy George Noonan was NCM’s sole owner, chief compliance officer, manager, and only employee.
- In its Form ADV and in communications with clients, NCM represented that its advisory fees generally ranged from 1% to 1.5% of assets under management (AUM), billed quarterly in advance.
- Contrary to those statements, NCM deducted “advisory fees” directly from client accounts at levels far above the disclosed range; some clients paid fees as high as approximately 7% of AUM.
- In an amended Form ADV, NCM reported advisory services to 23 accounts and represented that it had about $39.4 million in AUM, an amount above the then-applicable $25 million threshold for SEC registration eligibility.
- The SEC found NCM’s AUM representation was materially overstated and that NCM did not, in fact, have the AUM needed to be eligible to register with the SEC.
- NCM also represented in Form ADV that it was a Georgia limited liability company, but the SEC found NCM had not taken the required legal steps to become such an entity.
- NCM failed to maintain required books and records under the Investment Advisers Act of 1940 and failed to provide clients with the required disclosure brochure (Form ADV Part 2).
- The SEC instituted an administrative and cease-and-desist proceeding against NCM and Noonan; the matter resolved through an Offer of Settlement, with respondents neither admitting nor denying the findings (except as to jurisdiction).
- At the time of the SEC’s order, NCM was described as non-operational and having practically no assets.

## Issues

1. Whether NCM and Noonan violated the Investment Advisers Act antifraud provisions by charging advisory fees materially inconsistent with disclosed terms and by misleading clients about advisory compensation.
2. Whether NCM violated the Advisers Act by making materially false statements in Form ADV, including misstatements about AUM and NCM’s legal status.
3. Whether NCM violated the Advisers Act’s recordkeeping and client-delivery requirements by failing to keep required records and failing to provide Form ADV Part 2 to clients.
4. What cease-and-desist relief and sanctions were appropriate in the public interest in a settled SEC administrative proceeding.

## Decision

- The SEC accepted the respondents’ Offer of Settlement and issued an order making findings and imposing sanctions and a cease-and-desist order.
- The SEC found that NCM and Noonan engaged in fraudulent conduct by charging and collecting advisory fees far above the amounts disclosed to clients and described in Form ADV.
- The SEC found that NCM made materially false statements in Form ADV, including overstating AUM to appear eligible for SEC registration and misrepresenting its status as a Georgia LLC.
- The SEC found that NCM failed to maintain required books and records and failed to deliver required Form ADV Part 2 disclosures to clients.
- The SEC ordered NCM and Noonan to cease and desist from committing or causing violations of the cited provisions.
- The SEC imposed sanctions, including associational/industry restrictions and monetary relief (including disgorgement and penalties) as set out in the order.

## Legal Principles

- An investment adviser owes clients fiduciary obligations of honesty and fair dealing; collecting compensation on terms materially different from what the adviser disclosed to clients can constitute fraud under Advisers Act §§ 206(1) and 206(2).
- Deducting amounts from client accounts as “fees” that exceed the disclosed fee schedule may be treated as deceptive conduct and a misuse of client assets for purposes of the antifraud provisions.
- Materially false statements in an adviser’s SEC filings, including Form ADV statements about AUM and the adviser’s identity or legal form, can violate Advisers Act § 207.
- Registered advisers must keep specific books and records and must provide required disclosure documents (including Form ADV Part 2) to clients; failures can violate Advisers Act § 204 and related rules.
- In an SEC administrative settlement, the Commission may order cease-and-desist relief and impose sanctions and monetary remedies when it finds such relief is in the public interest.

## Conclusion

In the Matter of Noonan Capital Management, LLC involved an SEC-registered adviser and its owner who told clients and the SEC that fees would generally be 1% to 1.5% of AUM but instead deducted much higher fees from client accounts, sometimes reaching about 7% of AUM, while also filing a Form ADV that overstated AUM to appear eligible for SEC registration and misrepresented the firm’s entity status; the SEC further found recordkeeping and Form ADV Part 2 delivery failures and, through a settled administrative order, imposed a cease-and-desist order, sanctions, and monetary relief.


In the Matter of Noonan Capital Management, LLC, Investment Advisers Act Release No. 3609 (2013)