SEC Charges Multiple Hedge Fund Managers with Fraud in Inquiry Targeting Suspicious Investment Returns

As part of the Aberrational Performance Inquiry, an initiative to combat hedge fund fraud by identifying abnormal investment performance, the SEC took enforcement action against three separate advisory firms and six individuals for various misconduct. The SEC alleges that they engaged in a wide variety of illegal practices in the management of hedge funds or private pooled investment vehicles, including fraudulent valuation of portfolio holdings, misuse of fund assets, and misrepresentations to investors about critical attributes such as performance, assets, liquidity, investment strategy, valuation procedures, and conflicts of interest.

Under the initiative, the SEC Enforcement Division’s Asset Management Unit uses proprietary risk analytics to evaluate hedge fund returns and red flags performance that appears inconsistent with a fund's investment strategy.

“We’re using risk analytics and unconventional methods to help achieve the holy grail of securities law enforcement — earlier detection and prevention,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This approach, especially in the absence of a tip or complaint, minimizes both the number of victims and the amount of loss while increasing the chance of recovering funds and charging the perpetrators.”

SEC Charges Multiple Hedge Fund Managers with Fraud in Inquiry Targeting Suspicious Investment Returns