Former President of Registered Investment Adviser Firm Pleads Guilty to Mail Fraud
SAN FRANCISCO - Today the United States Attorney’s Office for the Northern District of California announced that on January 17, 2012, Kurt S. Hovan, of Belvedere, Calif., pled guilty to mail fraud stemming from Mr. Hovan’s fraudulent use of “soft dollars” and his subsequent obstruction of an investigation being conducted by the Securities and Exchange Commission (SEC).
According to the Plea Agreement, Mr. Hovan, 44, admitted to participating in a scheme to circumvent provisions of the Securities Exchange Act of 1934 by using “soft dollars” to pay his brother’s company a monthly salary, some of which his brother’s company then kicked back to pay rent for Mr. Hovan’s company, Hovan Capital Management, LLC (HCM). “Soft dollars” are credits from a brokerage firm on commissions generated by client trades in brokerage firm accounts. Brokerage firm clients, such as a registered investment adviser firm like HCM, are allowed to use those credits to pay for research services to benefit the investment adviser’s clients. The investment adviser, however, must disclose its use of these “soft dollar” credits, and the investment adviser is prohibited from using these credits to pay for its own benefit instead of its clients’ benefit.
Mr. Hovan also admitted that in response to requests from SEC examiners, he falsified documents making it appear that his brother’s company had done outside research that qualified it to receive “soft dollars” and supplied these false documents to the SEC. Mr. Hovan also admitted that when the SEC asked him about these documents, he falsely stated under oath that he had not created them.
Mr. Hovan is scheduled to be sentenced on May 15, 2012, before the Honorable Judge Richard Seeborg. The maximum statutory penalty for mail fraud, in violation of Title 18, United States Code, Section 1341, is 20 years in prison, a $250,000 fine, and 3 years of supervised release. Any sentence following conviction, however, would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.
Doug Sprague is the Assistant U.S. Attorney who is prosecuting the case with the assistance of Rayneisha Booth. The prosecution is the result of a 5-month investigation by the Federal Bureau of Investigation, with substantial assistance from the San Francisco Regional Office of the Securities and Exchange Commission.