On August 21, 2013, the SEC filed an order instituting enforcement proceedings against Chariot Advisors LLC (Chariot), a North Carolina-based investment adviser, and Elliot Shifman, Chariot’s former owner, alleging that Chariot and Mr. Shifman misled the Board of Trustees of the Northern Lights Variable Trust in connection with the Board’s review of Chariot’s proposed advisory contract with the Chariot Absolute Return Currency Portfolio, a newly created fund. The SEC’s order alleges that Chariot and Mr. Shifman misled the Board about Chariot’s ability to conduct algorithmic currency trading as part of the fund’s proposed investment strategy. The SEC’s order states that Mr. Shifman represented to the Board that Chariot would use an algorithmic model to perform currency trading on behalf of the fund, but Chariot did not devise or otherwise possess any algorithmic models to carry on this type of trading. The SEC’s order further states that even though Mr. Shifman thought that the fund’s currency trading needed to achieve a 25-30% return to succeed, he never disclosed to the Board that Chariot did not have an algorithm or model capable of generating such returns. Instead, the SEC alleges that Chariot’s currency trading was done by an individual trader who was allowed to use her discretion on trade selection and execution. The SEC’s order alleges that Chariot’s ability to trade currency based on an algorithmic model was important to the Board because, in the absence of an operating history of the fund, the Board focused on Chariot’s reliance on the model to evaluate Chariot’s proposed advisory contract with the fund.

The SEC’s order alleges that the misrepresentations by Chariot and Mr. Shifman resulted in violations of Sections 15(c) and 34(b) of the 1940 Act and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder.