SEC Prevails Against Hedge Fund Manager and Its Principal for Ponzi‑Like Scheme

In a scenario reminiscent of the Madoff scandal from ten years ago, the SEC received a final judgment against a hedge fund manager and two management companies he formed, permanently enjoining them from violating the antifraud provisions of the federal securities laws and ordering them to pay significant amounts in disgorgement and interest. This article details the allegations in the SEC’s civil enforcement complaint, the terms of the judgment and the resolution of the parallel criminal action against the manager. Unlike many SEC enforcement proceedings that turn on conflicts of interest, related-party transactions, inadequate disclosures, performance claims and fee and expense practices, this case appears to be one of unvarnished fraud. Nevertheless, the action reminds investors that they must verify both a manager’s custody of fund assets and certain of its claims. For lessons learned from other fraud cases, see “Fourteen Due Diligence Lessons to Be Derived From the SEC’s Action Against a Serial Practitioner of Hedge Fund Fraud” (Jul. 27, 2011); and “Twelve Operational Due Diligence Lessons From the SEC’s Action Against the Manager of a Commodities-Focused Hedge Fund” (Apr. 1, 2011).

To read the full article

Continue reading your article with a HFLR subscription.