For the past few years, the SEC has widely publicized its enforcement efforts against hedge funds. The agency has filed more than 100 hedge fund cases since 2010. On October 3, 2012, it issued an investor bulletin describing some of those cases and offering tips and guidance to investors considering hedge fund investments. The SEC also announced a pair of hedge fund fraud cases.
SEC v. Lion Capital Management LLC, et al., Case No. C-12-5116 EJD (N.D. Cal.). The SEC charged hedge fund manager Hausmann-Alain Banet and his firm Lion Capital Management with taking $550,000 from a retired schoolteacher who thought she was investing her retirement savings in Banet’s hedge fund. Banet led the teacher to believe that the money would be invested in the stock market. Rather than invest the money, however, Banet took the funds and used them to pay for improper personal and business expenses. To hide his fraud, Banet provided account statements showing fake investment gains. The SEC charged defendants with violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act and Rule 206(4)-8 thereunder. The SEC seeks injunctive relief, civil monetary penalties, and disgorgement plus prejudgment interest. In a parallel action, the U.S. Attorney’s Office for the Northern District of California filed criminal charges against Banet.
SEC v. GEI Financial Services, Inc. et al., Case No. 1:12-cv-7929 (D. Ill.). The SEC charged hedge fund managers Norman Goldstein and Laurie Gatherum and their firm GEI Financial Services with fraudulently taking $147,000 in excessive fees and capital withdrawals from a hedge fund they managed. Investors were not told that the hedge fund’s adviser removed various performance metrics when calculating fees. Also, they made improper withdrawals from the fund. Goldstein, Gatherum, and GEI did not tell investors that state regulators revoked Goldstein’s securities registration and barred him from providing investment advisory services. Nevertheless, Goldstein made investment decisions for his clients. The SEC charged the defendants with violating or aiding and abetting violations of Sections 204, 206(1), 206(2), and 206(4) of the Investment Advisers Act and Rules 204-1, 204-2, 204-3, 204A-1, 206(4)-7, and 206(4)-8(a)(1) thereunder. The SEC seeks injunctive relief, civil monetary penalties, and disgorgement plus prejudgment interest.