Articles Posted in Hedge Fund Fraud News

Hedge Funds – Investment Loss and Mismanagement Federal and State Litigation Attorney:

“Hedge fund” is a general, non-legal term used to describe private, unregistered investment pools that traditionally have been limited to sophisticated, wealthy investors. Hedge funds are not mutual funds and, as such, are not subject to the numerous regulations that apply to mutual funds for the protection of investors – including regulations requiring a certain degree of liquidity, regulations requiring that mutual fund shares be redeemable at any time, regulations protecting against conflicts of interest, regulations to assure fairness in the pricing of fund shares, disclosure regulations, regulations limiting the use of leverage, and more.

“Funds of hedge funds” are nvestment companies that invest in hedge funds. Some, but not all, register with the SEC and file semi-annual reports. They often have lower minimum investment thresholds than traditional, unregistered hedge funds and can sell their shares to a larger number of investors. Like hedge funds, funds of hedge funds are not mutual funds. Unlike open-end mutual funds, funds of hedge funds offer very limited rights of redemption. And, unlike ETFs, their shares are not typically listed on an exchange.

Hedge Fund Manager James Fry, Previously Sued by the SEC for Fraud, Found Guilty of Securities Fraud, Wire Fraud, and Making False Statements to the SEC

The Securities and Exchange Commission recently announced that on June 12, 2013 a jury found Minneapolis-area hedge fund manager James Fry guilty of five counts of securities fraud, four counts of wire fraud, and three counts of making false statements to the SEC during investigative testimony. Sentencing on these charges will be held on a later date. The U.S. Attorney’s Office for the District of Minnesota had filed criminal charges against Fry on July 19, 2011.

Fry is a defendant in a pending civil injunctive action filed by the SEC on November 9, 2011 in the United States District Court for the District of Minnesota. The charges leveled by the SEC stem from the same set of facts alleged by the U.S. Attorney’s Office. The SEC’s complaint alleged that Fry fraudulently funneled more than $600 million of investor money into a Ponzi scheme operated by Minnesota businessman Thomas Petters. During the period in which he invested with Petters, Fry and his hedge fund management company collected more than $42 million in fees. The SEC’s complaint further alleged that Fry falsely assured investors and potential investors that the flow of their money would be safeguarded by collateral accounts and described a phony process for protecting their assets. When Petters was unable to make payments on investments held by the funds he managed, Fry concealed it from investors by secretly executing note extensions with Petters. On February 14, 2012, the Hon. Richard H. Kyle, U.S. District Judge for the District of Minnesota, stayed the SEC’s action against Fry pending the resolution of his criminal case.

SEC Charges Hedge Fund Manager and Brokerage CEO with Fraud

The Securities and Exchange Commission recently announced charges against a Houston-based hedge fund manager and his firm accused of defrauding investors in two hedge funds and steering bloated fees to a brokerage firm CEO who also is charged in the SEC’s case.

An investigation by the SEC’s Enforcement Division found that George R. Jarkesy Jr., worked closely with Thomas Belesis to launch two hedge funds that raised $30 million from investors. Jarkesy and his firm John Thomas Capital Management (since renamed Patriot28 LLC) inflated valuations of the funds’ assets, causing the value of investors’ shares to be overstated and his management and incentive fees to be increased. Jarkesy, a frequent media commentator and radio talk show host, also lied to investors about the identity of the funds’ auditor and prime broker. Meanwhile, although they shared the same “John Thomas” brand name, Jarkesy’s firm and Belesis’ firm John Thomas Financial were portrayed as wholly independent. Jarkesy led investors to believe that as manager of the funds, he was solely responsible for all investment decisions. However, Belesis sometimes supplanted Jarkesy as the decision maker and directed some investments from the hedge funds into a company in which his firm was heavily invested. Belesis also bullied Jarkesy into showering excessive fees on John Thomas Financial even in instances where the firm had done virtually nothing to earn them.

Securities and Exchange Commission v. Randal Kent Hansen, et al., Civil Action No. 13-cv-01403 (S.D.N.Y., filed March 1, 2013)

SEC Charges Advisers to the RAHFCO Hedge Funds with Fraud

The Securities and Exchange Commission (“Commission”) recently filed a civil injunctive action in the United States District Court for the Southern District of New York relating to the fraudulent offer and sale of limited partnership interests in two hedge funds — RAHFCO Funds LP and RAHFCO Growth Fund LP (collectively “RAHFCO Hedge Funds”). The Commission charged RAHFCO Management Group, LLC (“RAHFCO Management”), a Delaware corporation and general partner of RAHFCO Hedge Funds; its principal, Randal Kent Hansen of Sioux Falls, South Dakota; Hudson Capital Partners Corporation (HCP), a New York corporation, the sub-adviser/portfolio manager of RAHFCO Hedge Funds; and Vincent Puma of Morganville, New Jersey, the principal of HCP, with securities fraud, among other violations of the securities laws, for engaging in a fraudulent scheme that defrauded investors out of more than $10 million.

Securities and Exchange Commission v. New Stream Capital, LLC, New Stream Capital (Cayman), Ltd., David A. Bryson, Bart C. Gutekunst, Richard Pereira, and Tara Bryson, et al., Civil Action No. 3:13cv264 (D. Conn.)

SEC Charges Connecticut Hedge Fund Managers With Securities Fraud

Recently, the Securities and Exchange Commission filed a civil injunctive action in the United States District Court for the District of Connecticut against Connecticut-based hedge fund managers David Bryson and Bart Gutekunst (“Gutekunst”) and their advisory firm, New Stream Capital, LLC, (“New Stream”) for lying to investors about the capital structure and financial condition of their hedge fund. New Stream was an unregistered investment adviser based in Ridgefield, Connecticut that managed a $750-plus million hedge fund focused on illiquid investments in asset-based lending. The SEC also charged New Stream Capital (Cayman), Ltd. (“Cayman Adviser”), a Caymanian adviser entity affiliated with New Stream, Richard Pereira (“Pereira”), New Stream’s former CFO, and Tara Bryson, New Stream’s former head of investor relations, for their role in the scheme. Tara Bryson has agreed to a proposed settlement relating to her conduct in this matter.

Securities and Exchange Commission v. Chetan Kapur; Lilaboc, LLC d/b/a ThinkStrategy Capital Management, LLC, Civil Action No. 11-CIV-8094 (S.D.N.Y.) (PAE)

Court Orders New York-Based Hedge Fund Manager and Firm to Pay Nearly $5 Million in Disgorgement and Penalties

The Securities and Exchange Commission recently announced that, on January 3, 2013, Judge Paul A. Engelmayer of the U.S. District Court for the Southern District of New York entered final judgments against hedge fund manager Chetan Kapur and his firm, ThinkStrategy Capital Management (ThinkStrategy), ordering them to jointly and severally pay disgorgement of $3,988,196.59 and civil penalties in the amount of $1,000,000.

Securities and Exchange Commission v. Steven B. Hart, Civil Action No. 12-CV-8986 (S.D.N.Y.)


The Securities and Exchange Commission recently charged New York-based fund manager Steven B. Hart (Hart) with repeated violations of the federal securities laws related to two distinct multi-year trading schemes, involving illegal matched trading and insider trading. In addition, the Commission charged Hart with making fraudulent representations in two securities purchase agreements.

Securities and Exchange Commission v. Yusaf Jawed, Grifphon Asset Management, LLC, Grifphon Holdings, LLC, and Robert P. Custis, Civil Action No. 12-1696 (U.S. District Court for the District of Oregon, filed September 20, 2012)

Securities and Exchange Commission v. Jacques Nichols, Civil Action No. 12-1698 (U.S. District Court for the District of Oregon, filed September 20, 2012)

Securities and Exchange Commission v. Lyman Bruhn, Pearl Asset Management, LLC, and Sasquatch Capital Management, LLC, Civil Action No. 12-1697 (U.S. District Court for the District of Oregon, filed September 20, 2012)

Litigation Release No. 22460 / August 27, 2012

Securities and Exchange Commission v. Gary R. Marks, CV-12-4486-JSC (N.D. Cal., filed August 27, 2012).

August, 2012:

Philip A. Falcone and Harbinger Charged with Securities Fraud

June, 2012:

The Securities and Exchange Commission recently filed fraud charges against New York-based hedge fund adviser Philip A. Falcone and his advisory firm, Harbinger Capital Partners LLC for illicit conduct that included misappropriation of client assets, market manipulation, and betraying clients. The SEC also charged Peter A. Jenson, Harbinger’s former Chief Operating Officer, for aiding and abetting the misappropriation scheme. Additionally, the SEC reached a settlement with Harbinger for unlawful trading.

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