The Securities and Exchange Commission alleges that Gregory Adams and Larry Grossman failed to disclose that they were paid for investments they recommended to clients.

The advisors have also been charged with contributing to violations of the “custody rule” that requires investment advisory firms to establish specific procedures to safeguard and account for client assets. 

According to the SEC, Grossman was paid approximately $3.3 million and Adams received $1 million in the undisclosed compensation arrangements. 

The SEC alleges that the advisors solicited and directed clients of their investment firm Sovereign International Asset Management to invest almost exclusively in funds controlled by asset manager Nikolai Battoo, who the SEC charged in a separate enforcement action last year. 

Grossman and Adams failed to inform clients about the conflict of interest in recommending these investments as Battoo was paying them millions of dollars in compensation for steering investors to his funds, the SEC said.

The SEC said that while Grossman and Adams had promoted the investments as being safe, they had failed to investigate numerous red flags surrounding Battoo and his funds.