This exchange of views made few days ago made me curious. I did not know anything about Cherokee's past problems with the SEC and I was wondering if Bob's trust in Cherokee's current situation was correct. So I did some control, and I have to say that Bob is wrong: Cherokee is not at all in good standing with the SEC!
Cherokee Investment Partners LL C is registered as an investment adviser with the SEC under the Investment Adviser Act of 1940. Cherokee, as investment adviser, must file the Form ADV. In the last one that Cherokee filed we can see that they made false declarations and omissions that may constitute a federal criminal violation!
First of all I think it's better to explain some of the words used.
An investment adviser is a person or firm that is engaged in the business of providing investment advice to others or issuing reports or analyses regarding securities, for compensation. Investment advisers may include money managers, investment consultants, financial planners, general partners of hedge funds, and others who are compensated for providing advice about securities.
Investment advisers generally must register with the Securities and Exchange Commission (SEC) or state securities authorities.
The following is an extract from this website: https://www.sec.gov/fast-answers/answersformadvhtm.html
"Form ADV is the uniform form used by investment advisers to register with both the Securities and Exchange Commission (SEC) and state securities authorities. The form consists of two parts. Part 1 requires information about the investment adviser’s business, ownership, clients, employees, business practices, affiliations, and any disciplinary events of the adviser or its employees. Part 1 is organized in a check-the-box, fill-in-the-blank format. The SEC reviews the information from this part of the form to process registrations and manage its regulatory and examination programs. Although designed for a regulatory purpose, investment adviser filings of Part 1 are available to the public on the SEC’s Investment Adviser Public Disclosure (IAPD) website at www.adviserinfo.sec.gov.
Beginning in 2011, Part 2 requires investment advisers to prepare narrative brochures written in plain English that contain information such as the types of advisory services offered, the adviser’s fee schedule, disciplinary information, conflicts of interest, and the educational and business background of management and key advisory personnel of the adviser. The brochure is the primary disclosure document that investment advisers provide to their clients. When filed, the brochures are available to the public on the IAPD website. [...]"
So the aim of this Form is to give information to the potential customers and to the officials of the SEC so that they not only acquire a check list for future investigation visits but also can evaluate potential conflicts of interest regarding the adviser and its related persons (including companies and/or persons affiliate to the adviser). Sections 203 and 204 of the Advisers Act (15 U.S.C. §§ 80b-3 and 80b-4) authorize the SEC to collect the information required by Form ADV for regulatory purposes and then it maintains the information submitted on this Form and makes it publicly available.Intentional misstatements or omissions constitute federal criminal violation under 18 U.S.C. §1001 and 15 U.S.C.§ 80b-17.
Form ADV contains four parts : 1A, 1B, 2A, 2B. The Form ADV Part 1A is the most important since the information given are the bases of the evaluation made by the SEC for the registration or for the suspension and/or revocation of the registration. The Part 1A consists of 12 Items, which must be check all together because the requested information constitute an unique and entire system.
Now we can return to the Cherokee's case.
Cherokee filed the last Form ADV Part 1A on 03/29/2017 and the last Form ADV Part 2A on 03/31/2017. Anyone can read them by following these links:
https://adviserinfo.sec.gov/IA…am_pdf.aspx?ORG_PK=161886
https://adviserinfo.sec.gov/IA…aspx?BRCHR_VRSN_ID=436256
In the Form ADV Part 1A they give these information:
"Cherokee is an investment adviser registered with the SEC : SEC file number 801-74482,and with FINRA’s CRD System : CRD number 161886. Principal office. 111East Hargett Street Suite 300 – Raleigh North Carolina 27601.
Another name declared by Cherokee as business name : Cherokee Advisers LLC (relying Advisor)"
In the premise of Item 6, the Form ADV asserts : "In this Item, we request information about your firm’s other business activities. "
Item 6 A Question : "You are actively engaged in business as a (check all that apply) "
In order to answer you must check a list of activities, among them there is this one: "(5) real estate broker, dealer, or agent."
Cherokee's answer : “ none “ – despite all the related companies engaged in real estate activity! The brownfields are by definition a real estate activity in so far they are not just remediation but also revitalization by building and selling housing, commercial centers etc. Moreover the Form ADV points out: "If you engage in other business using a name different from the names reported in Items 1.A or 1.B (in this case Cherokee Investment Partners LLC and Cherokee Advisers LLC), complete Section 6.A of Schedule D." Since Cherokee does not declare any activity except for the institutional activity, consequently does not declare any name of their related companies.
Item 6 B (1) Question : "Are you actively engaged in any other business not listed in Item 6.A (that is other than giving investment advice)?"
Cherokee’s answer: “no”. This answer is an omission, because Cherokee had to declare that it is actively engaged in another business with, for example, Industrial Heat LLC et al.
The office address of Cherokee Investment Partners LLC and the office address of Industrial Heat LLC are the same, Thomas Darden and John Mazzarino are consistent shareholder both of Cherokee Investment Partners LLC and Industrial Heat LLC, therefore Cherokee Investment Partners LLC and their officers Thomas Darden and John Mazzarino are directly engaged in the activity of IH LLC. As requested by Form ADV they engaged in this business with another name. Cherokee-Industrial Heat acting as a licensee of an energy renewable device and acting as a sponsor of research and development in the LENR field , is engaged in a business activity different both from the activities listed in Item 6 A and from an investment advice activity.
Both the omission in not declaring its real estate activity as a dealer (with another name , but it doesn’t matter for the SEC) and the omission in not declaring the activity of Industrial Heat could be very important in order to hide a problem of potential conflicts of interest between the investment advice activity and such others activities. The SEC is very focused on this matter and every omission may constitute a federal criminal violation.
And now Item 11, Disclosure Information.
In the premise the Form ADV asserts: "In this Item, we ask for information about your disciplinary history and the disciplinary history of all your advisory affiliates. We use this information to determine whether to grant your application for registration, to decide whether to revoke your registration or to place limitations on your activities as an investment adviser, and to identify potential problem areas to focus on during our on-site examinations. One event may result in “yes” answers to more than one of the questions below. Your advisory affiliates are : (1) all of your current employees (other than employees performing clerical, administrative , support or similar functions),(2) all of your officers, partners, or directors (or any person performing similar functions), and (3) all persons directly or indirectly controlling or controlled by you. If you are a "separately identifiable department or division" (SID) of a bank , see the Glossary of Terms to determine who your advisory affiliates are. If you are registered or registering with the SEC or if you are an exempt reporting adviser, you may limit your disclosure of any event listed in Item 11 to ten years following the date of the event. [...]"
Item 11 H (1) (a) Question : "Has any domestic or foreign court in the past ten years, enjoined you or any advisory affiliate in connection with any investment-related activity?"
Cherokee’s answer : “ No”.
Let's analyze every term of the question according to the” Glossary of Terms” attached to the Form ADV Instructions published in the SEC website :
- Advisory Affiliate : Your advisory affiliates are (1) all of your officers, partners, or directors (or any person performing similar functions);(2) all persons directly or indirectly controlling or controlled by you; and (3) all of your current employees( other than employees performing only clerical, administrative, support or similar functions).
Enjoined: This term includes being subject to a mandatory injunction, prohibitory injunction, preliminary injunction, or temporary restraining order.
Investment-Related: Activities that pertain to securities, commodities, banking, insurance, or real estate ( including, but not limited to, acting as or being associated with an investment adviser, broker-dealer, municipal securities dealer, government securities broker or dealer, issuer, investment company, futures sponsor, bank, or savings association).
Cherokee made an omission because they did not declare the story of Ashley II of Charleston LLC. One can read about it at this link:
http://www.sifferkoll.se/siffe…d-the-tax-payer-investor/
Summarizing: Ashley II of Charleston LLC is a company controlled by Cherokee (therefore it is an advisory affiliate), operative in the field of real estate. Ashley II of Charleston LLC (together with Ashley I LLC, both companies controlled by Cherokee) bought a brownfield in order to clean up it and build on the site. Then something went wrong..... The following is taken from this link:
http://www.ca4.uscourts.gov/Opinions/Published/111662.P.pdf
"These appeals arise from disputes as to liability for cleanup of hazardous substances at a former fertilizer manufacturing site in Charleston, South Carolina. After incurring response costs, Ashley II of Charleston, Inc., the current owner of a portion of the site, brought a cost recovery action against PCS Nitrogen, Inc., under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601-9675 (2006). PCS counterclaimed and also brought third-party contribution actions against parties with past and current connections to the site. The district court bifurcated the case for trial. At the conclusion of the first bench trial, it found PCS a potentially responsible party jointly and severally liable for response costs at the site. At the conclusion of the second bench trial, the court found some of the other parties, including Ashley, potentially responsible parties, each liable for an allocated portion of the site’s response costs. PCS, Ashley, and many of the other parties now appeal. For the reasons that follow, we affirm the judgment of the district court in all respects."
The Court’s verdict is a mandatory injunction in so far it ordered to the parties to remediate the site at their expenses. Moreover on April 4, 2013 the United States Court of Appeals for the Fourth Circuit confirming the judgement of the District Court decided that Ashley II of Charleston LLC was a liable part under CERCLA (Comprehensive Environmental Response , Compensation, and Liability Act) for the costs of the clean up and remediation of the site (see link above).
All the information that I have given here have been found in the internet and are public. It seems clear to me that Cherokee could still have some trouble with the SEC.......
