SEC Settles With Hedge Fund Adviser Charged With Misleading Investors

In the Matter of Quantek Asset Management, LLC, Bulltick Capital Markets Holdings, LP, Javier Guerra, and Ralph Patino, AP File No. 3-14893.  On May 29, 2012, the SEC issued an Order Instituting Administrative and Cease-And-Desist Proceedings against Quantek, Bulltick, Guerra and Patino.  The case centers around Quantek, a prominent Latin American-focused hedge fund adviser that misled investors about three significant features of the funds it managed.  At one point, Quantek managed more than $1 billion in assets.  First, from 2006 through 2008, Quantek made false statements to the effect that its principals had “skin in the game” along with investors in the funds.  In reality, Quantek’s principals never invested their own capital in the funds.  Second, Quantek mislead investors about the rigor of the investment process.  Quantek told investors that all investments required approval by a committee of principals who reviewed formal memoranda explaining each investment before it was made.  It also told investors that approval was documented by signing the memoranda.  In reality, Quantek never prepared investment memoranda.  When the fund’s largest investor asked for copies of the memoranda, Quantek created, backdated and signed memoranda to create the false impression that Quantek had followed a stringent process all along.  Third, Quantek provided investors with false information about certain related-party transactions by the fund.  Because the funds permitted related-party transactions with Bulltick, Quantek’s parent company, and other affiliates, investors were concerned about proper disclosure.  The funds made related-party loans to an affiliate, Guerra, and to Bulltick entities that were not properly documented or secured.  Later, Quantek and Bulltick employees prepared backdated missing loan documents.  Employees also created investment memoranda that made it appear as if they were drafted before the loans were made.  The materials inaccurately described the loans to give the false impression that they were properly secured and documented the whole time.

The OIP charges violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act, Sections 204 and  206(4) of the Investment Advisers Act and Rules 204-2(a)(7), 206(4)-7 and 206(4)-8 thereunder.  Without admitting or denying the allegations, the parties consented to cease-and-desist orders, and censures.  Guerra agreed to be barred from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization with the right to apply for reentry after five years.  He also agreed to be prohibited from serving or acting as an employee, officer, director, member of an advisory board, investment adviser or depositor of, or principal underwriter for, a registered investment company or affiliated person of such investment adviser, depositor, or principal underwriter with the right to apply for reentry after five years.  Patino agreed to similar bars with the right to apply for reentry after one year.

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