SEC Fines and Shutters Unregistered Hedge Fund Manager
An unregistered hedge fund manager was ordered to pay nearly $3 Million in investor reimbursement and fines and barred from the industry for deviating from the fund’s investment mandate and misleading investors about performance. The SEC alleges that the respondent moved all of the fund’s assets to a single penny stock issuer in exchange for a commitment to raise additional assets for the fund. The investment and concentration did not comply with PPM or LPA restrictions. Even though the LPA gave the GP broad authority to make investments, the SEC states that a fiduciary may not waive conflicts of interest. The SEC also asserts that the respondent lied to two separate administrators about valuation and used hypothetical backtested data to market the funds. The SEC charges breach of fiduciary duty and engaging in fraudulent conduct when managing a pooled investment vehicle for the conduct which occurred between 2009 and 2013.
OUR TAKE: You cannot avoid the long-arm of the law just because you sidestep SEC registration. The fiduciary and antifraud rules apply to any fund manager or adviser, whether or not registered, even with respect to conduct that occurred before the Dodd-Frank Act.