7.23.2008 The SEC settled charges with Thomas C. Palmer, formerly of Aeneas Capital Management, L.P., for making five unauthorized transfers of cash totaling $13.4 million from Aeneas Evolution Portfolio, Ltd. (Evolution) and Aeneas Portfolio Company, L.P. (Portfolio), each a hedge fund, to a third hedge fund, Priam Holdings Ltd. (Priam), to satisfy Priam's margin calls. Evolution, Portfolio and Priam are separate funds operated by Aeneas. The SEC also found that Aeneas failed to reasonably supervise Palmer, who was responsible for making the unauthorized transfers. Aeneas failed to have in place adequate policies and procedures designed to detect and prevent such unauthorized transfers of cash among funds.
According to the SEC, Priam invested primarily in microcap foreign issuers that trade on the Malaysian securities exchanges. Beginning in Spring 2006 and continuing into the summer, Priam accumulated a significant trading position in Iris Corporation, a Malaysian microcap issuer that trades on the Malaysian Stock Exchange but that does not trade on U.S. markets. Priam's position in Iris Corporation, as well as its positions in other issuers, was highly leveraged by using funds borrowed from its prime broker to trade on margin. In early July 2006, the position sizes within the Priam portfolio were increased to the point where there were several margin calls.
In an attempt to satisfy the margin calls, Palmer made five separate transfers of cash, totaling $13.4 million, to Priam from Evolution and Portfolio, despite knowing that Evolution, Portfolio and Priam were separate funds. The cash transfers were reversed in early August 2006 and the funds were sent back to Evolution and Portfolio. As a result, no investor funds were lost and Aeneas subsequently paid investors for the interest earned on the funds for the period during which they were in Priam's account.
Click http://www.sec.gov/litigation/admin/2008/ia-2757.pdf for a copy of the administrative order.