SEC v. Walter Morales and Commonwealth Advisors (M.D. Louisiana). On November 8, 2012, the SEC announced it charged Commonwealth Advisers and its principal Walter Morales with engaging in a scheme to hide losses in hedge funds they were advising. The losses were tied to investments in residential mortgage-backed securities. According to the SEC, Defendants tried to hide $32 million in losses by executing manipulative trades between funds. The Defendants misled investors about the amount and value of mortgage-backed assets held by the funds and Defendants created falsified documents to justify the valuations.
The Defendants are charged with violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act and Rule 206(4)-8. The SEC also charged Commonwealth with violating Sections 204, 206(4), and 207 of the Advisers Act and Rules 204-2, 206(4)-2, and 206(4)-7. Lastly, the SEC charged Morales with aiding and abetting Commonwealth’s violations and causing Commonwealth’s violations as a control person. The SEC’s investigation was conducted in coordination with members of the SEC Enforcement Division’s Structured and New Products Unit and Asset Management Unit.