Securities Law Prof Blog

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

Tuesday, January 12, 2010

SEC Settles Fraud Charges Against Two Florida Investment Advisers

The SEC charged Neil V. Moody and his son, Christopher D. Moody, two Sarasota, Fla.-based investment advisers, with securities fraud for misleading investors about the financial condition of three hedge funds they managed and misrepresenting that they controlled the funds' investment and trading activities when in fact they were being handled by Arthur G. Nadel.  The SEC charged Nadel with fraud last year and obtained an emergency court order to freeze his assets.

The SEC alleges that the Moodys distributed offering materials, account statements, and newsletters to investors that misrepresented the hedge funds' historical investment returns and overstated their asset values by as much as $160 million. The Moodys based their materials on grossly overstated performance numbers that Nadel created and provided to them. The Moodys failed to independently verify the accuracy of the figures despite multiple red flags, and relied exclusively on Nadel’s inaccurate information when communicating with investors.

According to the SEC's complaint, filed in federal court in Tampa, Fla., Neil and Christopher Moody disseminated misleading materials to investors about their hedge funds Valhalla Investment Partners L.P., Viking IRA Fund LLC, and Viking Fund LLC from at least 2003 through December 2008.  The SEC's complaint further alleges that the Moodys misled investors regarding their role in managing the assets of the three hedge funds by claiming that they controlled all of the investment and trading decisions. In truth, under an arrangement that the Moodys had with Nadel, he controlled nearly all of the funds’ investment and trading activities with no meaningful supervision or oversight by the Moodys.

In its complaint against the Moodys, the SEC seeks permanent injunctions, financial penalties, and disgorgement of illegal gains. Without admitting or denying the SEC's allegations, the Moodys have consented to permanent injunctions against future securities fraud violations. The Moodys also consented to the entry of a Commission order that will bar them for five years from associating with any investment adviser

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