South Florida Arbitration & Litigation Lawyer Blog
South Florida Hedge Fund Fraud, Mismanagement and Misrepresentation Litigation and Arbitration Attorney:
Hedge Fund Risk:
This post relates to the risks associated with Hedge Fund investing. Please keep in mind that this post is being provided for educational purposes only. It is not designed to be complete in all material respects. Thus, it should not be relied upon as providing investment or legal advice. If you have any questions about the contents of this post, you should contact a qualified professional.
It does not make any difference how sophisticated an investor is when it comes to fraud and misrepresentation. This is especially true when the only information that the investor receives is provided by the fund in which the investment is being made. A recent example is illustrated in a case filed, by the Securities and Exchange Commission, in the United States District Court for the Middle District of Florida charging Arthur Nadel with fraud in connection with six hedge funds (the “Funds”) for which he acted as the principal investment advisor. According to the Commission’s complaint, Nadel provided false and misleading information for dissemination to investors about the Funds’ historical returns and falsely overstated the value of investments in the Funds by approximately $300 million. In contrast, the Funds appear to have total assets of less than $1 million. Nadel has been missing since January 14, 2009.
The Commission’s complaint also alleges that two entities with which Nadel was associated, and which separately or together provided investment advice to all of the Funds, also engaged in fraud as a result of Nadel’s actions.
The Commission’s complaint alleges that the defendants provided false and misleading information to the relief defendants for dissemination to investors through account statements and through offering memoranda. For example:
Offering materials for three of the Funds represented that they had approximately $342 million in assets as of November 30, 2008. In contrast, those funds had a total of less than $1 million in assets at that time.
Offering materials for several of the Funds represented monthly returns of around 11 – 12% between January and November 2008. In contrast, at least three of the Funds had negative returns during that time and another fund had lower than reported returns.
One investor in one fund received an account statement for November 2008 indicating that her investment was valued at almost $420,000. In contrast, the entire fund had less than $100,000 at that time.
The Commission’s complaint also alleges that defendant Nadel recently transferred at least $1.25 million from two of the funds to secret bank accounts that he controlled.
The complaint charges Nadel, Scoop Capital, LLC and Scoop Management, Inc. with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeking a temporary restraining order, an asset freeze, and preliminary injunction against Nadel and preliminary injunctions and asset freezes against Scoop Capital and Scoop Management. In addition, the complaint seeks permanent injunctions, disgorgement plus prejudgment interest, and civil money penalties against all the defendants. Without admitting or denying the allegations of the complaint, defendants Scoop Capital and Scoop Management consented to the entry of, among other things, preliminary injunctions, asset freezes, and the appointment of a Receiver.
The complaint also names as relief defendants two investment management companies, Valhalla Management, Inc. and Viking Management, LLC, and the six Funds, Scoop Real Estate, L.P., Valhalla Investment Partners, L.P., Victory IRA Fund, Ltd., Victory Fund, Ltd, Viking IRA Fund, LLC, and Viking Fund, LLC. The complaint seeks disgorgement plus prejudgment interest against each of the relief defendants. Without admitting or denying the allegations of the complaint, the relief defendants consented to asset freezes and the appointment of a Receiver.
If it sounds to good to be true, it usually is. Consequently, the moral to the above story is either don’t invest in Hedge Funds or if you do, withdraw your funds at the first sign of a problem and take immediate action to attempt to recover any investment losses that you might have suffered. If you wait too long, you can see what happens.
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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.
At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.