On February 26, 2013, the SEC charged David A. Bryson (“D. Bryson”) and Bart C. Gutekunst (“Gutekunst”), the lead principals and co-owners of New Stream Capital, LLC (“New Stream”), a Connecticut-based unregistered investment adviser, as well as New Stream’s Cayman Islands advisory affiliate (which was controlled, managed and indirectly owned by D. Bryson and Gutekunst, the “Cayman Affiliate”), Richard Pereira (“Pereira”), New Stream’s former CFO, and Tara Bryson (“T. Bryson”), New Stream’s former director of marketing and investor relations, for perpetrating a scheme to mislead investors about the capital structure and financial condition of a fund managed by New Stream (the “Fund”).

According to the SEC, in order to appease the Fund’s largest investor, which had threatened to redeem its investment in the Fund because (without the large investor’s knowledge) New Stream had restructured the Fund a few months earlier (the “First Restructuring”) by creating two new feeder funds and granting equal liquidation rights to all investors (thereby eliminating the preferential status previously enjoyed by the existing feeder fund through which the large investor had invested), D. Bryson and Gutekunst decided to again revise the Fund’s capital structure (the “Second Restructuring”) to give the large investor and certain other preferred investors priority over other investors in the event of a liquidation.

The SEC alleged that, after the Second Restructuring, D. Bryson and Gutekunst directed New Stream’s marketing department (led by T. Bryson) to continue to market the Fund as if all investors had equal liquidation rights, which led to New Stream fraudulently raising nearly $50 million from new investors because the Second Restructuring was not disclosed to such investors. In addition, the SEC claimed that New Stream misled investors about the increased level of redemptions following the First Restructuring by not including the redemption request of the large investor and that Pereira falsified the Fund’s financial statements to conceal the Second Restructuring. According to the SEC, disclosure of the Second Restructuring would have made it more difficult for New Stream to raise additional capital and led to further redemptions by existing investors in the new feeder funds.

Based on such conduct, the SEC charged D. Bryson, Gutekunst, Pereira, T. Bryson and the Cayman Affiliate with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. D. Bryson and Gutekunst were also charged with violating Sections 206(1), 206(2) and, along with the Cayman Affiliate, Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The SEC is also seeking claims against D. Bryson, Gutekunst and Pereira under Section 20(a) of the Exchange Act as controlling persons for New Stream’s alleged violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and D. Bryson and Gutekunst as controlling persons for the Cayman Affiliate’s alleged violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. In addition, the SEC charged D. Bryson, Gutekunst, Pereira and T. Bryson for aiding and abetting the alleged securities laws violations of each other, New Stream and the Cayman Affiliate, as applicable.

According to the SEC’s complaint, the SEC is seeking to permanently enjoin the defendants from committing future violations of the federal securities laws and ordering them to disgorge any ill-gotten gains received as a result of the alleged violations, to pay prejudgment interest and to pay civil monetary penalties.