Activist Hedge Fund Manager Allegedly Abused Position on Bankruptcy Committee
The SEC filed a securities fraud lawsuit against an activist hedge fund manager for abusing his position as a co-chair of the unsecured creditors committee for a company in which his fund had a financial interest. The SEC asserts that the hedge fund manager, a former bankruptcy attorney, secretly pressured a third party to withdraw a competing bid to buy certain securities out of the bankruptcy estate so that the defendant could purchase them at a lower price. The defendant allegedly threatened to pull his brokerage business from the competing bidder, which recorded several incriminating conversations, if it did not withdraw.
Getting too involved with investments often leads to regulatory problems. We see this with activist hedge fund managers as well as private equity sponsors that are privy to material nonpublic information that does not impact the investment decision.