The advisory firm has been registered with the SEC as an investment adviser since September 15, 2010, but received improperly charged fees to some of the investors in the three funds that it formed in 2010 and 2011. Almost none of subscription agreements submitted by investors in the funds had completed the qualified client section.
According to a statement from the SEC, under section 205(a)(1) of the Advisers Act, registered investment advisers cannot enter into an advisory contract or provide advisory services under contracts that provide compensation based on a share of capital gains or upon capital appreciation of the assets or any portion of the assets of a client. These are known as performance fees. However, if the client is a “qualified client,” the provisions do not apply under rule 205-3 of the Advisers Act.
The definition of qualified client was revised as required by Dodd-Frank, and now qualified clients must have at least $1 million of assets under management with the adviser, up from $750,000, or a net worth of at least $2 million, up from $1.5 million.
When the advisory contract was established, Jim Poe and Associates failed to determine whether any investors satisfied the requirements of Advisers Act Rule 205-3. That is, whether any investors were “qualified clients.” As a result, the firm charged all investors in its funds, including those who were non-qualified clients, a performance fee. Between 2009 and 2012, Jim Poe and Associates received $637,843 in performance fees from investors who were not qualified clients.
The SEC instituted cease-and-desist proceedings against the Fort Worth, Texas, firm on December 24, 2013, for section violations of the Investment Advisers Act of 1940, and of the Securities Exchange Act of 1934. In response, Jim Poe and Associates offered a settlement that the SEC accepted, and the firm reimbursed all nonqualified clients the amount in performance fees each one improperly paid. The firm was also ordered to pay $35,000 to the Treasure Department in civil penalties.