A Pearl River, N.Y., advisor was ordered to pay nearly $1 million in penalties as part of a settlement with the SEC over charges that he hid a conflict of interest from clients when he solicited investments for a film production companiy.
Christopher Conover and Hudson Valley Wealth Management (HVWM), an RIA of which he is the sole owner, were ordered to pay disgorgement, prejudgment interest and a civil penalty totaling $777,711, according to the U.S. Securities and Exchange Commission. HVWM was ordered to pay a civil money penalty of $200,000. Both entities were censured.
The SEC charged Conover with violating his fiduciary duties by taking $530,000 in payments from a film production company to solicit investments and then failing to disclose the payments to clients who put money into the venture.
"Hudson Valley and Conover initially failed to disclose these payments to the clients and then later misrepresented that Conover earned this compensation for work as an executive producer on these films," the SEC said in a press release.
The film production company was not identified by the SEC, but court filings indicated the company was Bron Studios USA, a producer of major motion picture releases.
Conover did not return a call for comment.
Conover founded HVWM in 2008 and registered with the SEC in 2012, according to SEC filings. The firm has 27 individual clients, 59 high-net-worth clients and four pension and profit sharing plans, with combined assets under management of $112 million.
In addition, HVWM launched a private fund, Hudson Private LP, in 2014 for the sole purpose of investing in film productions. At the time of its March ADV filing, the fund had about $18.5 million in AUM. Minimum investment in this fund was stated in the ADV as $1 million, although the fund had 41 investors.
Hudson Private operated as a private lender to film productions, investing in films by loaning capital at specified monthly interest rates for pre-determined periods of time. Interest rates ranged from 10% to 30%, and timeframes from one to three years.
The SEC said its proceeding arose out of Conover’s and HVWM’s breaches of fiduciary duty to the firm clients and other investors who had been solicited for investment in Hudson Private.
“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 made to Conover,” the order said.
From September 2017 to October 2021, Conover received about $530,000 in executive producer compensation from the unnamed production company in exchange for soliciting some $22 million in eight different films, the order said.
While Conover initially failed to disclose the payments, he later tried to mislead clients and investors by saying the compensation was for work he did on the films outside of the investments he procured, the order said.
“In fact, Conover received these payments from [the production company] 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 and in the Fund’s private placement memorandum concerning these payments and the conflict they created,” the order said.
The production company began defaulting on its remaining loans beginning in early 2021, at which point Hudson announced it was suspending all investor withdrawals from the fund and no longer raising new capital.
In October 2021, the fund filed a civil lawsuit against the production company, the SEC said, but identified the lawsuit as Hudson Private LP v Bron Studios USA.
According to that lawsuit, prior to 2017 Hudson Fund invested in a range of productions from with multiple production companies. But beginning in 2017, all of its investments were made with Bron Studios or a subsidiary, which in turn would co-invest on other productions.
In August 2018, Hudson Private invested in the Bron Studios movie “Capone,” released May 2020. According to IMDB, it starred Tom Hardy, Linda Cardellini and Matt Dillon, and Conover was credited as an executive producer.
According to the civil suit, that release defaulted on its loans to Hudson Private and still owed more than $3.3 million as of August 2021.
The fund also invested in “Greyhound,” released in July 2020 and starring Tom Hanks and Elisabeth Shue. Bron Studios still owes Hudson Private more than $1.5 million from that production, the civil suit said.
An investment in the movie “Bombshell” did better on paper, as that film, starring Charlize Theron, Nicole Kidman and Margot Robbie, made almost $32 million in the U.S. and another $28 million internationally, the civil suit said. But $4 million was still owed to Hudson Fund by Bron as of August 2021, the suit said.
The lawsuit said Hudson was also owed $5 million from the movie “Harry Haft,” renamed “The Survivor” and released in 2021 starring Ben Foster, Billy Magnussen and Vicky Krieps.
In all, the suit said, Bron Studios owed Hudson Private more than $17 million.
According to IMDB, Conover first got involved in the film industry in 2012 as a prosthetic production manager in the makeup department for the Ryan Gosling film “The Place Beyond The Pines.” Conover then worked on Ben Stiller’s “The Secret Life of Walter Mitty” and then Leonard DiCaprio’s “The Wolf of Wall Street,” both in 2013.
Conover worked on five more films as a prosthetics production manager before moving to fundraising for films, according to IMDB.