SEC v. New Stream Capital, LLC, New Stream Capital (Cayman), Ltd., David A. Bryson, Bart C. Gutekunst, Richard Pereira, and Tara Bryson, et al., Case No. 3:13-cv-00264 (D. Conn.).  On February 26, 2013, the SEC announced fraud charges against hedge fund managers David Bryson and Bart Gutekunst and their advisory firm, New Stream Capital, LLC, (“New Stream”) for lying to investors about the capital structure and financial condition of their hedge fund.  New Stream was an unregistered investment adviser that managed a $750 million hedge fund.  The SEC also charged New Stream Capital (Cayman), Ltd. (“Cayman Adviser”), an adviser entity affiliated with New Stream, Richard Pereira (“Pereira”), New Stream’s former CFO, and Tara Bryson, New Stream’s former head of investor relations.  Tara Bryson settled with the SEC.

The SEC alleges that David Bryson and Gutekunst revised the fund’s capital structure for their largest investor, Gottex Fund Management Ltd. (“Gottex”).  They gave Gottex and other preferred investors priority over other investors in the event the fund had to liquidate. Gottex had threatened to redeem its $300 million investment because a prior restructuring had created feeder funds that gave equal liquidation rights to all investors.  This eliminated the preferential status previously held by Gottex.  Although Gottex had priority in the event of a liquidation, New Stream’s marketing department, led by Tara Bryson, continued to market the fund as if all investors had equal rights in the event of fund liquidation.  The fund raised almost $50 million in new investor funds without disclosing Gottex’s priority.  In addition, Pereira, New Stream’s CFO, falsified the hedge fund’s financial statements to conceal the revisions to the capital structure.  According to the SEC, the defendants also misled investors about the increased level of redemptions after Gottex submitted its redemption request.  When asked by prospective investors about redemption levels, New Stream did not include the Gottex redemption request and others that followed.  By the end of September 2008, as the U.S. financial crisis worsened, the New Stream hedge fund faced $545 million in redemption requests which caused it stop honoring redemptions and cease raising new funds.  New Stream and its affiliated entities subsequently went bankrupt.

The SEC’s complaint charges New Stream, David Bryson and Gutekunst with violations of Section 17(a) of the Securities Act, Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers and Rule 206(4)-8 thereunder.  The Cayman Adviser is charged with violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder. The SEC charged Pereira and Tara Bryson with violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder.  The SEC also alleges that David Bryson, Gutekunst and Pereira are each also liable as control persons under Section 20(a) of the Exchange Act for New Stream’s and Cayman Adviser’s violations of the federal securities laws.  Lastly, the SEC charged David Bryson, Gutekunst, Pereira, and Tara Bryson with aiding and abetting each other’s violations as well as New Stream’s and the Cayman Adviser’s violations.  The SEC seeks injunctive relief, disgorgement, and civil monetary penalties.

Tara Bryson has settled with the SEC by consenting to the entry of a final judgment that permanently enjoins her from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder.  She also consented to the entry of a Commission order barring her from associating with any investment adviser, broker-dealer, municipal securities dealer, or transfer agent.