Securities Law Prof Blog

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

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Friday, January 7, 2011

SEC Charges North Carolina Adviser with Defrauding Hedge Fund Investors

The SEC charged SJK Investment Management LLC, a Greensboro, N.C.-based investment adviser firm, and its owner Staney Kowalewski with defrauding investors in two hedge funds by secretly diverting millions of dollars to themselves through various self-dealing transactions.  The SEC obtained an emergency court order late yesterday freezing the assets of SJK Investment Management LLC and  Kowalewski, alleging that they raised more than $65 million since summer 2009 through marketing two hedge funds to various investors including pension funds, school endowments, hospitals and non-profit foundations. However, unbeknownst to these investors, Kowalewski placed $16.5 million of their money in an undisclosed, wholly-controlled, new fund that he created, and then misused it in a number of ways. For example, he purchased a vacation home for approximately $3.9 million. He also sold his personal home to the fund for nearly $1 million more than the price he paid for it, and then continued to live in the house essentially rent-free.

According to the SEC's complaint filed yesterday in federal court in Atlanta, SJK and Kowalewski began diverting investor money in August 2009 — almost immediately after receiving the first investor proceeds — to pay their personal and business overhead expenses under the pretense that they were "start-up" expenses for the funds.

 

http://lawprofessors.typepad.com/securities/2011/01/sec-charges-north-carolina-adviser-with-defrauding-hedge-fund-investors.html

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