SEC v. Yorkville Advisors, LLC, et al., Case No. 12-civ-7728 (S.D.N.Y.) The SEC’s Aberrational Performance Inquiry, which is a joint effort among the Division of Enforcement, Office of Compliance, Inspections and Examinations, and the Division of Risk, Strategy and Financial Innovation, has yielded several cases against hedge funds. On October 17, 2012, the SEC announced its most recent hedge fund case stemming from the Inquiry. The SEC charged a former $1 billion hedge fund advisory firm and two of its executives. The case concerns Yorkville Advisors, its founder and president Mark Angelo, and its CFO Edward Schinik. The Defendants reported false and inflated values for certain securities held by the funds managed by Yorkville in order to increase the funds’ assets under management and year-end performance. This, in turn, permitted the Defendants to garner more than $10 million in unearned fees. Defendants also provided false documents to the funds’ auditors and withheld information about certain investments. Defendants further mislead investors about, among other things, the value of some investments, the liquidity of the funds, and the collateral underlying some investments.
The SEC charged Yorkville with violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), (2) and (4) of the Investment Advisers Act and Rule 206(4)-8 thereunder. Angelo is charged with same violations as Yorkville. In addition, he has been charged with aiding and abetting Yorkville’s violations. Schinik is charged with violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and with aiding and abetting Yorkville’s violations.