SEC Pursues Trustee for Allowing Unauthorized Investments
The SEC has instituted administrative proceedings against the trustee responsible for ensuring that a hedge fund did not mis-use investor funds. The SEC alleges that the trustee allowed the hedge fund and its principals to use funds for unauthorized investments that included significant conflicts of interest.. Employing a somewhat novel structure to assure investors that their funds were protected, the hedge fund signed a trust indenture appointing a trustee with the responsibility for ensuring that no proceeds would be released for purposes not authorized by the trust indenture. The SEC alleges that the respondent violated his contractual and fiduciary responsibilities by allowing unauthorized uses of proceeds and failing to disclose conflicts of interest. The SEC charges that the respondent’s conduct aided and abetted the primary securities law violations.
OUR TAKE: The SEC is ready, willing and able to prosecute fund trustees with responsibility for safeguarding investor assets.