Former Atlanta pension adviser suspended and fined by SEC

Larry Gray, a former adviser to some of metro Atlanta’s largest public pensions, has been suspended by the U.S. Securities and Exchange Commission for intentionally defrauding city of Atlanta and MARTA retirement systems.

An SEC order dated Nov. 22 suspends Gray from serving as or working for an investment adviser for two years, then he must apply to the SEC for reinstatement. He is also required to pay back $251,298 — the amount of profit he and his company, Gray Financial, made on $77 million in questionable investments sold to the pension systems in 2012. In addition, Gray was fined $150,000.

Gray Financial was also censured, and Robert Hubbard, the 42-year-old former chief executive of Gray Financial, is suspended for one year and fined $75,000.

The action arises out of 2012 investments the Buckhead-based firm sold to four Atlanta pension systems — for transit workers, firefighters, police officers and general employees — while it served as an investment adviser to those systems.

As a 2013 Atlanta Journal-Constitution investigation had found, Gray Financial’s fund did not meet legal requirements for public pension investments in so-called alternative funds: private equity, real estate and distressed or start-up companies.

The Legislature imposed restrictions on alternative fund investments because they are more expensive and riskier than standard stocks and bonds, though they also hold the promise of higher returns.

Those restrictions include prohibiting public pension investments unless the alternative fund has at least $100 million from at least four other investors. The law also bars any public pension from holding more than 20 percent of the alternative fund’s investment.

After years of investigating and litigating the matter, the SEC found that investments in Gray Financial’s alternative fund violated all three of those provisions and that the boards were intentionally misled to believe the investments were legal.

The order says Gray “knew or was reckless in not knowing” that his claim about the legality of the investments was false.

Gray, 56, declined to answer questions or comment on the judgment, saying that all parties are “prohibited from commenting.” His attorney declined to comment for the same reason.

Gray’s company has been purchased by Capital Consequent Management, which now manages the alternative investment fund. The city’s investment in the alternative fund is still bound by a 10-year contract.

The contract guarantees the company a 1 percent annual management fee for 10 years.

Doug Strachan, chairman of the city’s General Employees’ Pension Fund, said the board was “satisfied that justice has prevailed.” He said the board is working with Capital Consequent and is hopeful it can negotiate a better deal.

“We are grateful to the SEC for their helping to bring closure to this matter,” Strachan said.

Angela Green, a member of the general employees’ board, filed the initial SEC complaint against Gray for recommending investment in the alternative fund without properly disclosing his company’s ownership.

“I’m very happy,” Green said. “The only thing is, to me the punishment doesn’t fit the crime. It should have been more severe. Look at how many people’s money this affected.”

Atlanta’s General Employees’ Pension Fund was the largest investor at $28 million, making up 36 percent of the money in Gray’s fund. The police pension invested $21 million, or 26 percent of the fund. The other investments were $15 million from the firefighters pension and $13 million from MARTA.

Gray Financial invested $1 million. Those remain the only investments in Gray’s fund, which has never reached the $100 million minimum threshold for public pension investment.

Gray will repay the ill-gotten gains to the SEC, which will then reimburse the various pension systems on a proportional basis.

It is unclear exactly how the fund has performed, but Strachan said it “has not met expectations, relative to … what the (pension) could have achieved in other, established” investments.

The AJC’s investigation raised other questions about Gray that were not addressed by the SECs order, including the apparent conflict-of-interest in Gray serving as an adviser to the pension boards and urging them to invest in his own product.

The AJC also found Gray failed to disclose to state and federal regulators that he was was paying off a sizable federal tax lien and a $1 million lawsuit settlement that accused him of fraud while he served as an adviser to the pension boards.

Reader Comments ...

Next Up in Local

BREAKING: 10-year-old girl shot in DeKalb County, police say
BREAKING: 10-year-old girl shot in DeKalb County, police say

A 10-year-old girl was shot in the arm in Scottdale Wednesday night, police confirmed to Channel 2 Action News. The child was shot on the 300 block of Hatton Drive at the Oak Forest Apartments a little after 10 p.m., DeKalb County police said.  She was transported to a local hospital and is in stable condition, Channel 2 reported. An investigation...
Atlanta charity worker fatally shot in head while driving home
Atlanta charity worker fatally shot in head while driving home

A metro Atlanta grandmother was shot and killed early Sunday morning while driving home from work, authorities said. Beverly Jenkins, 49, was driving her minivan home around 12:30 a.m. after working her shift at the City of Refuge, where she worked helping homeless mothers, Channel 2 Action News reported.  While driving near the intersection of...
GBI: Father runs from car as police find baby dead inside
GBI: Father runs from car as police find baby dead inside

A father was arrested after he fled a traffic stop, leaving authorities to find his 10-month-old daughter dead in the back seat of the car.  Cameron Ramon Reese, 22, faces aggravated assault and concealing the death of another charges after he ran from police during a traffic stop early Wednesday in Greenville, GBI spokeswoman Nelly Miles said...
Suspect arrested, accused of killing man found in shopping cart
Suspect arrested, accused of killing man found in shopping cart

A man accused of killing a man found in a shopping cart last month was arrested Wednesday, Atlanta police and jail records confirmed.  Details on Landus McBride’s arrest were not released.  Atlanta police identified McBride, 42, of Atlanta, earlier this week in the death of Thomas Hall.  RELATED: Police ID suspect accused...
Couple arrested, accused in $65K thefts at Athens middle school  
Couple arrested, accused in $65K thefts at Athens middle school  

A man and woman accused of pilfering more than $65,000 in copper and supplies from an Athens middle school were arrested at a motel in Banks County, officials confirmed Monday.  Eric Aguilar and Sierra Yuhas, both 28, were pulling out of the Comfort Inn on Devils Pond Road in Crawford when Banks County sheriff’s deputies arrested them on...
More Stories