Chew on This One For A While !!!
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SEC charges firm, hedge fund managers with 60-mln-dlr fraud Tue Mar 4, 4:03 PM ET
WASHINGTON (AFP) - The US Securities and Exchange Commission said Tuesday it has filed civil fraud charges against a financial consulting firm and three of its managers for running an investment scheme that resulted in the loss of 60 million dollars.
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The SEC's charges target the Salt Lake City, Utah-based Thompson Consulting Inc., an investment firm that also operated at least two hedge funds, and three hedge fund managers.
The managers, identified as Kyle Thompson, David Condie and Sherman Warner, allegedly used clients' funds to engage in riskier trades than they had marketed to their investors.
"Today's action demonstrates that an investment advisor employing a strategy inconsistent with its representations to investors will be called to account for losses incurred as a result of the undisclosed change in strategy," said Linda Thomsen, the head of the SEC's enforcement division.
After the hedge funds sustained losses, the three managers bet virtually all the hedge funds' assets on complex futures options traded through the Chicago Board Options Exchange (CBOE), the SEC said.
The CBOE trades were essentially wiped out in mid-August of last year when the US financial markets dropped sharply due to mounting fears about the housing market slump and a related credit crunch.
The SEC said that as a result the hedge funds run by Thompson Consulting saw their value plummet from 54 million dollars to just 200,000 dollars between July 31 and August 17.
The investment managers had also allegedly racked up other losses tied to the stock of New Century Financial Corp., a lender of subprime, or high-risk, mortgages, after misrepresenting their strategies to clients.
Officials said about 100 investors had been affected by the three managers' actions.
The regulator also claimed that the investment advisors improperly transferred three million dollars from one of the hedge funds to an individual investor's account in a bid to mask losses.
The SEC is seeking a range of civil sanctions against the hedge fund managers and Thompson Consulting through the US District Court for the District of Utah.
Hedge funds are private investment pools that are typically run on the behalf of wealthy investors.
AI
