Can the SEC Bar a Hedge Fund Manager from Serving as an Officer or Director of a Public Company?

The SEC can request various remedies in civil actions brought against hedge fund managers, including a bar prohibiting the manager from serving as an officer or director of a public company.  Because such a remedy can significantly impact a defendant’s ability to make a living, it is not surprising that such bars are challenged.  A federal district court recently ruled on a hedge fund manager’s challenge to an officer and director bar requested by the SEC in a civil action where the manager has been accused of misusing hedge fund assets to make concentrated investments in a financially-distressed company for which he served as the chairman of the board of directors.  One of the two arguments advanced by the manager was that the statutory bar was not an “appropriate” remedy given the factual allegations.  This article describes the factual background in this case; the legal arguments advanced; and the court’s ruling on the manager’s motion for partial judgment on the pleadings.  For a detailed discussion of the SEC’s complaint in this matter, see “Recent SEC Enforcement Action Provides a Dramatic Example of Style Drift in the Hedge Fund Context,” Hedge Fund Law Report, Vol. 4, No. 43 (Dec. 1, 2011).

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