SEC Names Securities Lawyer for Aiding/Abetting Hedge Fund Fraud
The SEC charged a securities lawyer with aiding and abetting his hedge fund client’s securities fraud. The SEC alleges that the hedge fund manager lied to investors about performance and assets under management. The SEC asserts that he arranged sham consulting agreements between disgruntled hedge fund investors and a public company he controlled. In addition to charging the hedge fund manager with several violations of the securities laws, the SEC also charged his lawyer with aiding and abetting his violations of the anti fraud rules. The SEC asserts that the lawyer drafted the sham consulting agreements and “knew or recklessly disregarded that the true purpose of the consulting agreements was to settle potential claims.” The SEC also faults the lawyer for failing to inform the company’s Board.
OUR TAKE: The SEC’s naming of a lawyer in an enforcement action breaks new ground in its prosecution of securities markets gatekeepers. In fact, we predicted such a case about a month ago. The SEC has indicated that securities markets service providers cannot simply take fees and ignore clients’ misconduct.