The SEC charged a Minneapolis-based hedge fund manager, his investment advisory firm, and an accomplice with bilking investors in two hedge funds out of more than $1 million under the guise of research expenses and fees.
The SEC alleges that as the management fees earned by Archer Advisors LLC were shrinking due to the funds’ worsening performance, the firm’s owner and an employee implemented a scheme to enrich themselves at the expense of investors in the funds. The owner routinely caused the funds to reimburse Archer for fake research expenses, and he eventually routed much of that money to his personal checking account and spent it on country club dues, boarding school tuition, and a Lexus among other luxury items. Furthermore, the firm's owner devised a way to essentially charge fund investors twice for the same fake research expenses. First, he billed the funds directly by falsely claiming that Archer had paid the specified employee to conduct “research” for the funds. Second, he and the employee improperly diverted soft dollars from the hedge funds to the employee for the same purported “research” under the additional pretense that the employee was an independent consultant. Soft dollars were supposed to be used to buy third-party investment research that benefited the funds. The employee conducted no third-party research as an Archer officer whose main duties were placing trades and helping the owner find new investors.
The SEC’s complaint filed in federal court in Minneapolis also charges the two individuals with conducting a separate scheme to manipulate the stock price of the funds’ largest holding in order to inflate the monthly returns reported to investors and conceal the true extent of the funds’ mounting investment losses.
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