Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Tuesday, March 4, 2008

SEC Files Fraud Charges Against Thompson Consulting

The SEC filed an enforcement action against a Salt Lake City investment adviser and three of its principals for making undisclosed high-risk investments that resulted in the near total loss of the assets in two hedge funds managed by the adviser.  The SEC charged Thompson Consulting, Inc., Kyle Thompson, David Condie and Sherman Warner with violations of the antifraud provisions of the securities laws by engaging in much riskier trading strategies than those described to investors, several of whom were seniors.  The SEC alleges that Thompson, Condie and Warner managed the hedge funds and also made sales presentations to potential investors in which they emphasized the safety of Thompson Consulting's investment strategy for the funds. 

The SEC's complaint, filed in the U.S. District Court for the District of Utah, also alleges that Thompson Consulting's deviations from its stated investment policy resulted in substantial losses to both the hedge funds and an individual client.  Among those departures from its stated strategy were failed investments in options on the stock of a subprime lender. The SEC's complaint further alleges that the defendants improperly transferred money from the hedge funds to the account they managed for the individual client to make up for the individual's losses.  The SEC alleges that from March through August 2007, Thompson Consulting, in attempting to attain promised returns of 3 percent per month (or more than 36 percent per year), embarked on progressively riskier trading strategies without disclosing the change in strategy to the hedge funds' investors.

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