Hedge Fund Manager Too Late in Delivering Fund Financials
The SEC instituted enforcement proceedings against a hedge fund manager for failing to comply with the Advisers Act’s custody rule and making material misrepresentations. The SEC alleges that the adviser failed to deliver audited financial statements to investors in the time periods required by the custody rule (206(4)-2). The fund did not distribute the 2008 and 2009 financials until 2011 and did not deliver the 2010 financials until December 2011. The SEC charges that timely financial statements would have notified investors of investments in companies controlled by the fund manager. The SEC also charges violations of the anti-fraud laws and rules for failing to disclose the investments and not following the PPM.
OUR TAKE: This is exactly the type of factual situation for which the custody rule was adopted. Timely notice of fund holdings may have prevented investor loss.
This manager clearly has something up his sleeve. It might be something fishy or a kind of monkey business that he tries to run or is involved with. Clearly, he has the knowledge about the process but intentionally failed to deliver the audited statements. He wouldn’t have reached that position if he didn’t know what he was doing. His plans eventually caught up with him and it messed up big time.