Thursday, October 4, 2012

SEC Charges Hedge Fund Managers With Fraud

The SEC charged a pair of hedge fund managers and their firms with lying to investors about how they were handling the money invested in their respective hedge funds. The charges are the latest in a series of actions taken by the SEC Enforcement Division and its Asset Management Unit against hedge fund-related misconduct in the markets.

In one case, the SEC alleges that San Francisco-based hedge fund manager Hausmann-Alain Banet and his firm Lion Capital Management stole more than a half-million dollars from a retired schoolteacher who thought she was investing her retirement savings in Banet’s hedge fund. In the other case, the SEC charged Chicago-based hedge fund managers Norman Goldstein and Laurie Gatherum and their firm GEI Financial Services with fraudulently siphoning at least $147,000 in excessive fees and capital withdrawals from a hedge fund they managed.

Since the beginning of 2010, the SEC has filed more than 100 cases involving hedge fund malfeasance such as misusing investor assets, lying about investment strategy or performance, charging excessive fees, or hiding conflicts of interest. The SEC today issued an investor bulletin detailing some of those cases as examples of why investors must rigorously evaluate a hedge fund investment before making one.
“These hedge fund frauds have lured even the most sophisticated investors using the siren song of outsized returns or secured and guaranteed investments,” said the Director of the SEC’s Division of Enforcement. “As fraudsters increasingly capitalize on the cachet of hedge funds, we will maintain our strong presence in policing this industry.”
In the past few weeks alone, the SEC has charged an Atlanta-based private fund manager and his firm with defrauding investors in a purported “fund-of-funds” and then trying to hide trading losses, charged a hedge fund adviser in Oregon with running a $37 million Ponzi scheme through several hedge funds he managed, and charged a New York-based hedge fund manager who touted a diversified and controlled-risk investment strategy for his fund while in reality misusing investor assets to prop up a failing private company. The New York-based fund manager also failed to disclose conflicts of interest, and he falsely overstated his firm’s assets under management in various magazine articles he authored.

There is more information at the Commission's site.

If you have questions or concerns regarding an SEC investigation or a FINRA enforcement proceedings, our attorneys have been representing targets, subjects and witnesses in civil and criminal proceedings for decades. Contact us at
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