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O.C. Investment Advisor Fined Over Advertising Claims

Securities: Norman Yu is to pay $150,000 after SEC finds that returns were overstated. He does not admit or deny charges.


High-profile investment advisor Norman L. Yu was censured and fined by the Securities and Exchange Commission on Wednesday on charges that he distributed false and misleading advertising that overstated his returns to investors by as much as 24% from 1985 to 1991.

Yu and his Newport Beach company, Norman L. Yu & Co., agreed to pay $150,000 in civil penalties without admitting or denying the commission's findings. The fine is one of the largest ever filed against an investment advisor on charges of false advertising, said Kelly Bowers, assistant regional director with the SEC in Los Angeles.

Once a superstar among money managers, Yu managed as much as $210 million in the early 1990s and touted his "six-key stock selection system" in financial publications. Several major Wall Street brokerage firms listed Yu as a preferred money manager to run "wrap" accounts, which allow a broker to match a customer with a portfolio manager, such as Yu, for a fee.

Yu said Wednesday that he would not comment on the SEC's order.

"Since 1993, we have had the historical performance of our growth intermediate-term composite [account] audited by a Big Six accounting firm," he said in a statement. "From 1985 to June 30, 1996, the average annual return was 18.72% after reduction of management fees and 20.1% before management fees."

Specifically, the SEC on Wednesday ordered Yu to cease and desist from violating the anti-fraud provisions of the Investment Advisors Act of 1940. In advertisements that appeared from 1991 to March 1993, Yu said the performance of his accounts in 1990 ranged from 6.6% to 23.9% returns when, in fact, the firm's performance for that year was -6.65%, the SEC said. In 1989, Yu said the firm's performance was 55.9%, when it was actually 38.14%, according to the SEC.

The SEC also charged that Yu failed to keep the records necessary to validate his performance records from 1985 to 1991 and failed to establish written policies and procedures. As part of the settlement, Yu must hire a person approved by the SEC to review all of the company's advertisements.

Yu's problems are not considered widespread, specialists said. In 1993, the Assn. for Investment Management in Research in Washington implemented new guidelines for money managers to follow when calculating performance. Those guidelines led Yu to revise his numbers.

Yu's firm, which has been registered with the SEC as an investment advisor since 1969, has seen its assets under management drop to about $34 million as of June 1996. Money managers such as Yu typically invest for pension funds, trust funds and wealthy individuals, who typically need $250,000 to open an account.

With his top-performance records, Yu was recognized throughout the country for his financial acumen. In 1991, he was ranked the fourth-best-performing portfolio manager in the nation by Money Manager Verified Ratings for his 103.7% returns that year, said Norman Zadeh, who once ran the contest from Beverly Hills.

"I think the $150,000 fine is about right, I'm just surprised it took this long," said Zadeh, who said his rankings for Yu in 1991 were accurate but that he was alerted to problems with Yu's results in 1992 after speaking with Mark Yu, Norman's son and an employee at Yu's firm.

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