Medley settles SEC charges over misrepresenting AUM, future growth

Medley Management and its former co-CEOs agreed to settle Securities and Exchange Commission charges that the asset manager made misrepresentations to investors and clients that created the illusion of likely future growth.

Medley and former co-CEOs Brook B. Taube and Seth B. Taube did not admit to or deny the SEC’s findings in agreeing to the settlement and will collectively pay $10 million in civil penalties, the SEC announced Thursday.

In multiple public filings — including bond offering materials — since at least August 2016, Medley overstated its assets under management by including “committed capital” amounts from non-discretionary clients, whose agreements with Medley imposed no obligation to invest with Medley and whose investing activity through Medley was minimal, according to an SEC order.

Brook B. Taube, Seth B. Taube and Medley did not disclose that there was a risk that a significant amount of the clients’ capital would never be invested and would therefore never generate the fee income on which Medley’s financial growth depended, the SEC said in a news release.

Moreover, in June 2018, as Medley’s fee-earning AUM had been decreasing for the previous few years, the Taubes used projections of Medley’s “positive future performance that lacked a reasonable basis,” to recommend to advisory clients a merger whereby Medley’s two business development company clients would acquire Medley and give the Taubes contracts for high-paying jobs, the order notes.

“Under the federal securities laws, investors are entitled to complete and accurate information about the companies they invest in,” said Lara Shalov Mehraban, acting director of the SEC’s New York regional office, in the news release. “The Taubes, as the CEOs of a publicly traded asset manager, failed to ensure that investors were given correct information about the company’s assets under management and adequate disclosures about its risks.”

Medley filed for bankruptcy in March 2021 and its shares were delisted from the New York Stock Exchange in July.