In a joint enforcement action, the office of the New York State Attorney General and the SEC’s New York Regional Office recently took enforcement action (see also SEC v. Malik, S.D.N.Y. , No. 1:15-cv-01025, 2/13/2015) against a New York-based hedge fund manager for allegations of securities fraud, grand larceny, and forgery. The lawsuit was filed by the SEC in the U.S. District Court for the Southern District of New York and on the same day, the hedge fund manager was indicted in New York. The manager has entered a plea of not guilty to the criminal charges.
According to the SEC’s complaint, the hedge fund manager raised about $840,000 from investors into a hedge fund that never made any investments and never had more than $90,000 in assets. The manager allegedly enticed persons to invest by stating that the fund had $100 million in assets and delivered “consistently high returns.” The SEC’s complaint alleges that in spite of the manager’s statements to investors, almost all of the investors’ investments were used to maintain the manager’s personal lifestyle. As investors sought to redeem their investments, the manager delayed such requests and even created a message to some investors that the manager had died as an excuse for delaying or refusing to redeem investors interests in the fund.
The violations alleged to have occurred by the SEC are under the “anti-fraud” provisions under the Securities Act of 1933, the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. The SEC, in its civil action, is seeking an asset freeze, disgorgement, and prejudgment interest and penalties.