UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

INVESTMENT ADVISERS ACT OF 1940

Release No. 5452 / February 27, 2020

INVESTMENT COMPANY ACT OF 1940

Release No. 33807 / February 27, 2020

ADMINISTRATIVE PROCEEDING

File No. 3-19715

In the Matter of

FORTRESS INVESTMENT 

MANAGEMENT, LLC and

 WILLIAM M. MALLOY, III

Respondents.

ORDER INSTITUTING ADMINISTRATIVE 

AND CEASE-AND-DESIST PROCEEDINGS, 

PURSUANT TO SECTIONS 203(e), 203(f) 

AND 203(k) OF THE INVESTMENT 

ADVISERS ACT OF 1940 AND SECTION 

9(b) OF THE INVESTMENT COMPANY 

ACT OF 1940, MAKING FINDINGS, AND 

IMPOSING REMEDIAL SANCTIONS AND 

A CEASE-AND-DESIST ORDER

I.

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 pursuant to Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 

(“Advisers Act”) and Section 9(b) of the Investment Company Act of 1940 (“Investment Company 

Act”) against William M. Malloy, III and Fortress Investment Management, LLC (collectively 

“Respondents”). 

II.

In anticipation of the institution of these proceedings, Respondents have submitted Offers 

of Settlement (the “Offers”) which the Commission has determined to accept. Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over them and the subject matter of these 

proceedings, which are admitted, and except as provided herein in Section V, Respondents consent 
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to the entry of this Order Instituting Administrative and Cease-and-Desist Proceedings, Pursuant to 

Sections 203(e), 203(f) and 203(k) of the Investment Advisers Act of 1940 and Section 9(b) of the 

Investment Company Act of 1940, Making Findings, and Imposing Remedial Sanctions and a 

Cease-and-Desist Order (“Order”), as set forth below. 

III.

On the basis of this Order and Respondents’ Offers, the Commission finds1that: 

Summary

These proceedings arise from improper Commission registration and failure to disclose a 

conflict of interest involving William M. Malloy, III (“Malloy”) and two investment adviser firms

under his control, MWM 1835, LLC (“MWM”) and Fortress Investment Management, LLC 

(“Fortress”). 

In January 2014, MWM registered with the Commission as an investment adviser at 

Malloy’s direction. MWM registered based on the premise that it would reach $100 million in 

regulatory assets under management (“RAUM”) within 120 days and therefore be eligible to 

remain registered. As the 120-day mark approached, MWM staff reported to Malloy that they 

believed the firm had no more than $10 million in RAUM. Nonetheless, MWM remained 

improperly registered for months while Malloy maintained that the firm’s RAUM included more 

than $100 million in assets in which he held a personal interest. Yet as Malloy knew or was 

reckless in not knowing, his occasional discussions with an MWM investment adviser 

representative regarding general investment strategies or investment ideas for these assets were not 

a sufficient basis to include them in MWM’s RAUM. 

During 2014 and 2015, advisory clients of MWM and Malloy held approximately $2.6 

million in investments in a private fund called Income Opportunity Capital, LLC (“IOC”). IOC 

was managed by Fortress, which Malloy controlled. At Malloy’s direction, IOC invested heavily 

in securities issued by an entity in the Oregon-based Aequitas enterprise (“Aequitas”).2 At the 

same time, Aequitas was paying Fortress a monthly fee for consulting and business development 

services that included introducing prospective investors to Aequitas. These payments created a 

conflict of interest that Malloy did not disclose to the MWM clients who invested in IOC. Clients 

did receive information broadly identifying a potential conflict of interest, but it was insufficient to 

allow them to provide informed consent to the actual conflict that existed. 

 

1

 The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding on any other 

person or entity in this or any other proceeding. 

2

 In March 2016, the Commission commenced an action charging several Aequitas companies and officers with 

fraudulent sales of more than $300 million in securities. See SEC v. Aequitas Management, LLC, et al., No. 3:16-

cv-00438-PK (D. Or. filed March 10, 2016).
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Respondents

1. William M. Malloy, III, age 43, resides in La Jolla, California. Malloy’s marital 

trust owned 95 percent of MWM and 100 percent of Fortress. Malloy was a Manager of both 

entities and controlled them. Through his control of Fortress, Malloy controlled IOC. 

2. Fortress Investment Management, LLC is a Delaware limited liability company 

formed by Malloy in April 2011 and owned by Malloy’s marital trust. Fortress served as manager 

and investment adviser to IOC and also conducted non-advisory business operations.3

Other Relevant Entities

3. MWM 1835, LLC is a Delaware limited liability company formed by Malloy in 

October 2013. Malloy’s marital trust owns 95 percent of MWM. MWM became registered with 

the Commission as an investment adviser in January 2014 and withdrew its registration in June 

2015. MWM currently conducts no investment advisory or other operations. 

4. Income Opportunity Capital, LLC was a Delaware limited liability company 

formed by Malloy in January 2010 that invested in private credit strategies, including Aequitas 

securities. IOC was liquidated in September 2015. At its peak, it had approximately $5.4 million 

in assets. 

Facts

Malloy Aided and Abetted MWM’s Improper Registration with the Commission

5. Malloy formed MWM in October 2013 for the purpose of conducting an 

investment advisory business. At all times, MWM had no more than ten employees. Malloy used 

the title “Chairman” of MWM and controlled the firm.

6. In January 2014, at Malloy’s direction, MWM became registered with the 

Commission as an investment adviser. The registration was based on the premise that MWM 

would reach $100 million in regulatory assets under management (“RAUM”) within 120 days and 

therefore be eligible to remain registered. 

7. As the 120-day deadline approached, Malloy knew that MWM’s outside 

compliance consultant had advised that if MWM did not reach $100 million in RAUM by the 

deadline, it would be required to withdraw its Commission registration and register with the state 

of California instead. Also as the deadline approached, MWM staff provided reports to Malloy 

indicating they believed the firm had no more than $10 million in RAUM. 

 

3

 From January to May 2015, Fortress was designated a relying adviser on MWM’s Form ADV filed with the 

Commission. 
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8. The $10 million figure did not count certain closely held assets in which Malloy

had a personal interest (“the closely held assets”). Malloy had occasional discussions with an 

MWM investment adviser representative regarding general investment strategies or investment 

ideas for the closely held assets. But MWM did not provide continuous and regular supervisory or 

management services for the closely held assets, as the Commission’s Form ADV required for 

those assets to be included in MWM’s RAUM figure.

9. On May 9, 2014, MWM filed a Form ADV with the Commission stating that 

MWM had approximately $104 million in RAUM and continuing the firm’s registration with the 

Commission. Malloy learned of this filing within a week. 

10. MWM’s chief compliance officer (“CCO”) learned of the RAUM figure in the 

Form ADV after it was filed, and starting on June 1, 2014, the CCO made several requests to 

Malloy to identify the basis for the $104 million. The CCO framed the issue as one requiring 

immediate attention. Malloy responded by referring the CCO to other MWM staff and telling the 

CCO that he would address the issue only after the CCO completed certain unrelated tasks. 

11. Then, in early July 2014, Malloy directed the CCO to documents purporting to 

show that in March 2014, MWM had entered a written investment management agreement with 

four entities that controlled the closely held assets. The purported agreement covered 

approximately $101 million in assets of the four entities. These documents were misleading 

because, as Malloy knew, or was reckless in not knowing, MWM was not providing continuous 

and regular supervisory or management services for the assets. 

12. Over the next few months, the CCO, Malloy, and others on MWM’s staff worked 

to determine MWM’s RAUM figure in accordance with the instructions to Form ADV. After 

conferring with outside counsel, the outside compliance consultant, and Malloy, the CCO 

concluded in November 2014 that MWM then had approximately $13 million in RAUM (having 

added approximately 50 new clients since May 2014). With Malloy’s agreement, the CCO then 

notified Commission staff that MWM had begun the process of withdrawing from Commission 

registration and registering with the state of California.

Malloy Failed to Disclose an Aequitas-Related Conflict of Interest

13. Some of Malloy and MWM’s advisory clients were invested in IOC, which Malloy 

managed through IOC’s investment adviser, Fortress, which was wholly owned by Malloy’s 

marital trust. IOC’s stated investment strategy was to invest primarily in private credit strategies, 

with an emphasis on investing in Aequitas securities. From 2013 to 2015, Malloy, through 

Fortress, directed IOC to invest in multiple promissory notes issued by Aequitas Commercial 

Finance, LLC (“ACF”), an Aequitas entity. At all times from 2014 through IOC’s liquidation in 

September 2015, ACF promissory notes made up more than 95 percent of the investment assets 

held by IOC.
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14. In February 2014, Malloy caused Fortress to enter into a consulting services 

agreement with Aequitas Capital Management, Inc. (“ACM”), the Aequitas entity that served as 

the manager of ACF. Under the agreement, ACM paid Fortress a flat fee of approximately 

$15,000 per month for performing consulting and business development services that included 

introducing prospective investors to Aequitas. While the agreement was in effect during 2014 and 

2015, IOC purchased approximately $1 million of ACF promissory notes at the direction of 

Malloy and Fortress, and thirteen advisory clients of MWM and Malloy were invested in IOC. 

15. As an investment adviser, Malloy was obligated to fully disclose all material facts 

to advisory clients, including any conflicts of interest with advisory clients. To meet this 

obligation, Malloy was required to provide advisory clients with information sufficiently specific 

so that the clients could understand any conflict of interest and make an informed decision whether 

to provide consent to the conflict.

16. The Fortress-ACM agreement incentivized Malloy, through his control of Fortress, 

to invest IOC in Aequitas, rather than other investments, using the assets that MWM clients 

invested in IOC. The agreement therefore created a conflict of interest between Malloy and MWM 

clients. Yet Malloy took no steps to disclose the agreement to clients, and it was not disclosed. 

17. Clients did receive information broadly identifying a potential conflict of interest, 

but it was not sufficient to allow them to provide informed consent to the actual conflict that 

existed. IOC investors were provided with IOC’s limited liability company agreement and an IOC 

private placement memorandum approved by Malloy. These documents included statements that 

Fortress or its personnel “may” work for and receive compensation from companies in which IOC 

invested. But clients were not informed that Aequitas, in which IOC was heavily invested, in fact 

was compensating Fortress for the services described above. 

18. While the Fortress-ACM agreement was in effect, IOC paid Fortress approximately 

$45,040 in management fees that were assessed on capital of MWM clients which was invested in 

IOC, and, in turn, invested in ACF promissory notes by IOC.

Violations

19. As a result of the conduct described above, MWM willfully violated Section 203A 

of the Advisers Act by improperly registering with the Commission. Malloy willfully aided and 

abetted and caused MWM’s violation of Section 203A.

20. As a result of the conduct described above, Malloy willfully violated Section 206(2) 

of the Advisers Act, which prohibits an investment adviser from “engag[ing] in any transaction, 

practice, or course of business which operates as a fraud or deceit upon any client or prospective 

client.” Proof of scienter is not required to establish a violation of Section 206(2). SEC v. 

Steadman, 967 F.2d 636, 643 n.5 (D.C. Cir. 1992) (citing SEC v. Capital Gains Research 

Bureau, Inc., 375 U.S. 180, 195 (1963)). Fortress was a cause of Malloy’s violations of Section 

206(2). 
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Undertaking

21. Malloy has undertaken to provide to the Commission, within 30 days after the end 

of the 12-month suspension period described below, an affidavit that he has complied fully with the 

sanctions described in Section IV.B below.

IV.

In view of the foregoing, the Commission deems it appropriate and in the public interest to 

impose the sanctions agreed to in Respondents’ Offers.

Accordingly, pursuant to Sections 203(e), 203(f) and 203(k) of the Advisers Act and 

Section 9(b) of the Investment Company Act, it is hereby ORDERED that:

A. Malloy cease and desist from committing or causing any violations and any future 

violations of Sections 203A and 206(2) of the Advisers Act; and Fortress cease and desist from 

committing or causing any violations and any future violations of Section 206(2) of the Advisers 

Act. 

B. Malloy be, and hereby is:

suspended from association with any broker, dealer, investment adviser, 

municipal securities dealer, municipal advisor, transfer agent, or nationally 

recognized statistical rating organization, for a period of 12 months, effective 

on the second Monday following the entry of this Order; and

prohibited from serving or acting as an employee, officer, director, member 

of an advisory board, investment adviser or depositor of, or principal 

underwriter for, a registered investment company or affiliated person of such 

investment adviser, depositor, or principal underwriter, for a period of 12 

months, effective on the second Monday following the entry of this Order.

C. Malloy shall, within 10 days of the entry of this Order, pay a civil money penalty in 

the amount of $50,000 to the Securities and Exchange Commission. If timely payment is not 

made, additional interest shall accrue pursuant to 31 U.S.C. §3717.

D. Fortress shall, within 10 days of the entry of this Order, pay a civil money penalty 

in the amount of $50,000, disgorgement in the amount of $45,040, and prejudgment interest in the 

amount of $9,057 to the Securities and Exchange Commission. If timely payment of disgorgement 

and prejudgment interest is not made, additional interest shall accrue pursuant to SEC Rule of 

Practice 600, and if timely payment of the civil money penalty is not made, additional interest shall 

accrue pursuant to 31 U.S.C. § 3717.
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E. Payment of the above disgorgement, prejudgment interest, and civil money penalty 

amounts must be made in one of the following ways: 

(1) Respondents may transmit payment electronically to the Commission, 

which will provide detailed ACH transfer/Fedwire instructions upon 

request; 

(2) Respondents may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 

(3) Respondents may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to: 

Enterprise Services Center

Accounts Receivable Branch

HQ Bldg., Room 181, AMZ-341

6500 South MacArthur Boulevard

Oklahoma City, OK 73169

Payments by check or money order must be accompanied by a cover letter identifying 

Malloy and Fortress as Respondents in these proceedings, and the file number of these 

proceedings; a copy of the cover letter and check or money order must be sent to Steven D. 

Buchholz, Assistant Regional Director, Securities and Exchange Commission, 44 Montgomery 

Street, Suite 2800, San Francisco, California, 94104. 

F. Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, a Fair Fund is created 

for the disgorgement, prejudgment interest and penalties referenced in paragraphs IV.C and IV.D

above. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated 

as penalties paid to the government for all purposes, including all tax purposes. To preserve the 

deterrent effect of the civil penalty, Respondents agree that in any Related Investor Action, they 

shall not argue that they are entitled to, nor shall they benefit by, offset or reduction of any award 

of compensatory damages by the amount of any part of Respondents’ payment of a civil penalty in 

this action (“Penalty Offset”). If the court in any Related Investor Action grants such a Penalty 

Offset, Respondents agree that they shall, within 30 days after entry of a final order granting the 

Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the Penalty 

Offset to the Securities and Exchange Commission. Such a payment shall not be deemed an 

additional civil penalty and shall not be deemed to change the amount of the civil penalty imposed 

in this proceeding. For purposes of this paragraph, a “Related Investor Action” means a private 

damages action brought against one or both Respondents by or on behalf of one or more investors 

based on substantially the same facts as alleged in the Order instituted by the Commission in this 

proceeding.

G. Malloy shall comply with the undertaking enumerated in Section III.21 above.
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V.

It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 

523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 

Malloy, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 

amounts due by Malloy under this Order or any other judgment, order, consent order, decree or 

settlement agreement entered in connection with this proceeding, is a debt for the violation by 

Malloy of the federal securities laws or any regulation or order issued under such laws, as set forth 

in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19).

By the Commission.

Vanessa A. Countryman

Secretary