Initiated By
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Allegations
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted against Hudson Valley Wealth Management, Inc. ("Hudson") and Christopher Conover ("Conover") (collectively "Respondents"). In anticipation of the institution of these proceedings, each Respondent has submitted an Offer of Settlement (the "Offers") which the Commission has determined to accept. The Commission finds that: these proceedings arise out of breaches of fiduciary duty by registered investment adviser Hudson Valley Wealth Management, Inc. ("Hudson") and its principal, Christopher Conover ("Conover"), to Hudson's clients, including separately managed accounts (the "SMAs") and a private investment fund called Hudson Private, LP that invests in films (the "Fund"). Specifically, Hudson and Conover failed to disclose to a conflict of interest to clients and Fund investors (most of whom were Hudson advisory clients) related to payments that a third-party film production finance company ("Production Company A") made to Conover. Hudson and Conover then later materially misled their clients and Fund investors regarding the nature of these payments and the associated conflicts of interest they posed. Hudson and Conover also breached their fiduciary duties to their clients who invested in the Fund by preferencing one Fund investor's redemption request over the redemption requests of clients invested in the Fund. Between September 2017 and October 2021 ("Relevant Period"), Hudson and Conover advised both the Fund and the SMAs concerning investments in certain films produced by Production Company A. At the same time, Conover, through his affiliated company, Hudson Private Corp. ("Hudson Private"), received approximately $530,000 in executive producer compensation during the Relevant Period from Production Company A for the same films in which the Fund and the SMAs made investments. Hudson and Conover initially failed to disclose these payments and then later misrepresented to these clients that Conover earned this compensation for work as an executive producer on these films. In fact, Conover received these payments from Production Company A solely as a fee in exchange for the monies that the Fund and the SMAs invested in the films. Hudson and Conover also made materially false and misleading statements to investors in the Fund in its Form ADV Part 2B Brochure ("ADV Brochure") and in the Fund's private placement memorandum ("PPM") concerning these payments and the conflict they created. Furthermore, in May 2021, Hudson and Conover granted a redemption request from one Fund investor by paying that investor's redemption request in full, at the Fund's then current valuation, while leaving several other simultaneously submitted redemption requests from Fund investors (who were also Hudson clients) outstanding and unpaid. In effecting this preferential redemption, Hudson and Conover violated their fiduciary duties to their clients who invested in the Fund. As a result of their conduct, Hudson and Conover willfully violated Sections 206(2) and 206(4) of the Advisers Act, and Rule 206(4)-8 thereunder.
Resolution
Order
Sanctions
Cease and Desist
Sanctions
Censure
Sanctions
Civil and Administrative Penalty(ies)/Fine(s)
Amount
$150,000.00
Sanctions
Disgorgement
Amount
$531,787.00
Sanctions
Prejudgment Interest on Disgorgement
Broker Comment
As a result of his conduct, Conover willfully violated Sections 206(2) and 206(4) of the Advisers Act, and Rule 206(4)-8 thereunder. Accordingly, it is hereby ordered that Conover is ordered to cease and desist from committing or causing any violations and any future violations of Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 promulgated thereunder, is censured, shall pay disgorgement of $531,787, prejudgment interest of $95,924.09, and a civil penalty of $150,000.