Recent SEC Enforcement Action Against Private Fund Manager Underscores Importance of Identifying and Understanding Money Transfers Between a Hedge Fund and the Hedge Fund Manager During the Investor Due Diligence Process

On January 17, 2012, Judge Carol E. Jackson of the U.S. District Court, Eastern District of Missouri granted the SEC’s request for emergency injunctive relief (including an asset freeze and appointment of a receiver) against Burton Douglas Morriss as well as several investment management companies and private equity funds operated by Morriss in response to the SEC’s complaint alleging that Morriss misappropriated more than $9 million in investor assets from 2005 through 2011.  See generally “Key Legal Considerations in Connection with Loans from Hedge Funds to Hedge Fund Managers,” Hedge Fund Law Report, Vol. 3, No. 28 (Jul. 15, 2010).  This article describes the SEC action brought against Morriss and the investment management companies and private equity funds he operated.  The article also provides several recommendations to assist hedge fund investors in identifying and understanding asset transfers between a hedge fund manager and its hedge funds.  See also “Ten Steps That Hedge Fund Managers Can Take to Avoid Improper Transfers among Funds and Accounts,” Hedge Fund Law Report, Vol. 4, No. 13 (Apr. 21, 2011).

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