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Univ. of Toledo College of Law

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Tuesday, July 1, 2008

Court Enters Fraud Judgment Against Investment Adviser

The federal district court in the Southern District of New York entered a final judgment against defendant Francis J. Saldutti ("Saldutti"), permanently enjoining Saldutti from violating the antifraud provisions of the federal securities laws and requiring him to pay more than $5,082,138 in disgorgement and prejudgment interest. Saldutti consented to entry of the final judgment without admitting or denying the allegations of the Commission's Second Amended Complaint.SEC v. Northshore Asset Management, et al., CV 05-2192 (WHP) (S.D.N.Y.).

The SEC's original complaint alleged that, in April 2003, defendant Northshore Asset Management LLC ("Northshore") and its three principals, defendants Kevin Kelley ("Kelley"), Glenn Sherman ("Sherman"), and Robert Wildeman ("Wildeman") (together, the "Northshore Defendants"), purchased Saldutti Capital Management, L.P. ("SCM") from Saldutti and thereby obtained control over two hedge funds, Ardent Research Partners L.P. and Ardent Research Partners Ltd. (together, the "Ardent Funds"). Kelley, Sherman, and Wildeman proceeded fraudulently to divert tens of millions of dollars of the Ardent Funds' cash assets to their own personal use, including purported personal loans and self-dealing investments. Consequently, by early 2005, the Ardent Funds became illiquid and were unable to meet investor redemption requests.  Subsequently the SEC amended its complaint to add securities fraud and investment adviser fraud claims against Saldutti, the Ardent Funds' founder and investment adviser, and Douglas Ballew, Northshore's former CFO. The SEC alleged that after his sale of SCM to the Northshore Defendants, Saldutti remained as the portfolio manager of the Ardent Funds and became a part owner, creditor, and employee of Northshore. The Commission alleged that Saldutti failed to disclose adequately, and made affirmative misrepresentations regarding, the sale of SCM to Northshore and his numerous conflicts of interest to the Ardent Funds and the Ardent Funds' investors. The Commission also alleged that Saldutti failed to disclose adequately, and made affirmative misrepresentations regarding, his transfer of tens of millions of dollars of Ardent Funds' cash from their prime brokerage accounts to Northshore-controlled accounts. The Commission further alleged that Saldutti failed to disclose certain material facts to two new investors that he welcomed to the Ardent Funds in late 2004, including the fact that Kelley had been arrested and charged with unrelated investment advisers fraud in early December 2004.

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