Enforcement News: SEC Cracks Down on Misuse of Investor Funds in Investment Pools

By: Jeffrey M. Haber

On June 5, 2026, the Securities and Exchange Commission (“SEC”) announced that it charged an investment adviser and his related companies with allegedly engaging in a multi-year fraud.

The enforcement action arose out of the alleged misuse of a pooled investment vehicle – an investment structure in which multiple investors combine capital into a single fund managed by an adviser.[1] According to the SEC, defendants operated one of the companies (the “Fund”) as a purportedly “exclusive” investment pool, soliciting funds from investors based on representations of strong performance and a disciplined trading strategy. The SEC’s complaint focuses on how defendants allegedly undermined the benefits of an investment pool. Rather than managing pooled assets for the collective benefit of investors, defendant is alleged to have exercised unilateral control over the Fund in a manner that involved misappropriating assets, commingling funds, and concealing the Fund’s true financial condition.  

Investment Pools: A Primer

Investment pools, often referred to as pooled investment vehicles, are arrangements in which multiple investors combine their financial resources into a single fund that is managed collectively by a professional investment manager. Rather than each investor making independent investment decisions, participants contribute capital to a common pool, and the manager directs how those funds are invested in accordance with a defined strategy. In return, each investor holds a proportional interest in the overall fund, meaning that gains and losses are shared based on the size of each investor’s contribution.

At the core of an investment pool is the principle of collective investing. By aggregating capital, investors can access a broader range of opportunities than they might individually, including diversified portfolios and more complex financial instruments. This structure also allows for greater efficiency, as transaction costs and management expenses are spread across all participants. The pooled nature of the fund therefore offers both scale and flexibility, making it an attractive vehicle for a wide range of investment strategies.

An important feature of investment pools is the role of the investment manager. The manager exercises control over the pooled assets and makes all decisions regarding asset allocation, trading, and risk management. Investors relinquish direct control over their funds, relying instead on the manager’s expertise and judgment. This dynamic creates a fiduciary relationship, meaning the manager is obligated to act in the best interests of the investors, provide accurate information, and avoid conflicts of interest.

Investment pools operate under a unified investment strategy, which is disclosed to investors in advance of their investment. Whether the strategy involves equities, derivatives, real estate, or private companies, all participants are subject to the same investment approach and to the same performance outcomes. As a result, the success of the investment pool depends heavily on the skill and integrity of the manager or adviser, as well as the accuracy and transparency of the information provided to investors.

Because investors entrust their money to an investment manager and lack direct oversight, investment pools are subject to significant legal and regulatory requirements. These include obligations to provide full and fair disclosure, maintain accurate financial records, and report performance truthfully. Managers must also properly safeguard investor funds and ensure they are used only for their intended investment purposes. These protections are critical because the pooled structure concentrates both control and risk in the manager’s hands.

Investment pools are regulated through a combination of the federal securities laws, regulatory oversight, and fiduciary obligations imposed on the managers or advisers who control them. For example, investment pools are regulated under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”). These laws require, among other things, that offerings of pooled investment interests must either be registered with the SEC or qualify for an exemption. Even when exempt from registration (as many private funds are), the anti-fraud provisions of the federal securities laws still apply. This means fund managers or advisers are prohibited from making material misstatements, omitting material information, or engaging in deceptive practices in connection with the offer or sale of pooled interests.

In addition, investment pools are subject to the Investment Advisers Act of 1940 (“Advisers Act”), which governs the conduct of investment advisers who manage these funds. Under the Advisers Act, managers owe fiduciary duties to investors, including duties of loyalty and care. These duties require advisers to act in the best interests of investors, avoid conflicts of interest or fully disclose them, and provide full and fair disclosure of all material facts. The Advisers Act also prohibits advisers from engaging in fraudulent, deceptive, or manipulative practices, including the misuse of client funds or the misleading reporting of performance.

Regulation focuses on disclosure and transparency. Investment pool managers must provide investors with offering documents, such as private placement memoranda, that describe the investment strategy, risks, fees, and structure of the fund. Ongoing disclosures are also important. Investors are typically entitled to periodic account statements, accurate valuation of their investments, and tax reporting (such as Schedule K‑1 forms in partnership-style funds).

Another key aspect of regulation involves the custody and safeguarding of assets. Investment Managers must maintain client funds separately from their own and are generally required to use qualified custodians (such as banks or brokerage firms) to hold assets. These rules are designed to prevent commingling and misappropriation.

Finally, enforcement is a central component of regulation. The SEC has broad authority to investigate and bring civil enforcement actions against fund managers, advisers, and entities that violate the law. Remedies can include injunctions, disgorgement of ill-gotten gains, monetary penalties, and bars from serving as an investment adviser. In some cases, the Department of Justice may also bring parallel criminal actions.

Securities and Exchange Commission v. Myers, et al.

According to the SEC, beginning in or about January 2022 and continuing through at least July 2025, defendants acted as investment advisers in connection with the Fund. The Fund operated as an investment pool, whereby multiple investors contributed capital that was combined into a single fund and managed collectively by defendant through his entities.[2] Investors in the Fund purchased limited liability interests and, in doing so, relinquished control over investment decisions in reliance on defendant’s expertise and representations regarding the Fund’s strategy and performance.

Through this pooled structure, defendants allegedly raised approximately $4 million from at least 28 investors located in several states. As is typical of investment pools, investor funds were to be aggregated and deployed according to a centralized investment strategy, with each investor sharing proportionally in the Fund’s gains and losses. The Fund’s offering documents allegedly represented that investor capital would be used for trading and investment purposes, and that returns would depend on defendant’s skill in managing the portfolio.

The SEC alleged that defendant engaged in a multi-year fraudulent scheme that undermined the structure and purpose of the investment pool. Rather than managing pooled assets for investors’ benefit, defendant allegedly misappropriated investor funds, commingled assets, and diverted substantial sums into personal accounts under his control. Defendant used these funds for speculative trading and personal expenses, including credit card debt and rent, without disclosing them to investors, the SEC said.

The SEC further alleged that defendant routinely incurred significant trading losses, often dissipating investor contributions within days. As a result, alleged the SEC, the value of the pooled investment vehicle declined dramatically, with more than $3.6 million of investor funds allegedly lost or unaccounted for.

To conceal these losses and maintain investor confidence in the pooled fund, defendant allegedly provided investors with false account statements. These statements portrayed positive returns and steady growth in investor capital, often reporting annual gains of approximately 16% to 54% and claiming that the Fund outperformed the S&P 500. The SEC alleged that the reported performance figures were based on manipulated net asset value (“NAV”) calculations that included assets not actually owned by the Fund, such as property and retirement accounts belonging to defendant’s father-in-law, as well as speculative estimates of future income.

In addition, defendant allegedly failed to provide investors with required tax documentation reflecting their share of the Fund’s income or losses, thereby concealing the Fund’s true financial condition. Instead, defendant reported trading losses on his personal tax returns without disclosing this information to investors, the SEC said.

The SEC also alleged that defendant refused or delayed investor redemption requests under false pretenses, including misrepresenting that assets were unavailable due to regulatory action.  In reality, said the SEC, the Fund allegedly lacked sufficient assets to satisfy redemption requests because investor funds had been depleted through trading losses and misappropriation.

As of the end of 2025, defendants had repaid approximately $398,000 to investors, while the vast majority of the pooled funds remained lost.

Based on the alleged wrongful conduct, the SEC claimed that defendants violated the anti-fraud provisions of the federal securities laws, including Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b‑5 promulgated thereunder, and Sections 206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8 promulgated thereunder.  The SEC further alleged that defendant is liable as a control person under Section 20(a) of the Exchange Act. The SEC seeks injunctive relief, disgorgement, and civil penalties against all defendants.

Takeaway

First, the SEC’s enforcement action underscores the application of the federal securities laws’ anti-fraud provisions to private investment funds and their advisers. The SEC alleged that defendant and his companies engaged in a continuous scheme to defraud investors through material misrepresentations and omissions, including false claims about investment performance and the misuse of investor funds. Those allegations implicated multiple statutory provisions demonstrating that a single course of deceptive conduct can give rise to liability under several distinct, but complementary, anti-fraud frameworks. The SEC’s complaint reinforces the principle that advisers to pooled investment vehicles owe fiduciary duties of full and fair disclosure and that knowingly or recklessly misleading investors regarding performance, risks, or the use of funds constitutes actionable securities fraud.

Second, the enforcement action highlights the SEC’s approach to misappropriation and misuse of investor assets, particularly when funds are commingled and diverted for personal gain. The SEC alleged that defendant transferred investor money into personal accounts, used it for speculative trading and personal expenses, and concealed these activities from clients. This conduct, combined with the failure to maintain separation between the entity's and the personal finances, supports claims not only of fraud but also of breach of fiduciary duty under the Advisers Act.

Third, the enforcement action demonstrates that falsified performance reporting and manipulation of valuation metrics, such as net asset value, are important enforcement priorities for the SEC. Defendant allegedly fabricated account statements showing consistent gains and outperformance of the S&P 500 and inflated the Fund’s NAV by including assets not owned by the Fund and hypothetical future income. Those acts were significant because they directly affected investors’ understanding of their investments and decision-making. The SEC’s allegations make clear that inaccurate or intentionally manipulated reporting, especially when used to induce additional investments or prevent redemptions, will be treated as material misstatements under federal securities laws.

__________________________________

Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice.

Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm.

___________________________________

[1] Throughout this article, we use the term “manager” to mean an investment manager or investment adviser.

[2] According to the SEC, defendant exercised complete control over the Fund and the entities through which it operated, directing all aspects of its management, investment decisions, and reporting functions.