Securities Law Prof Blog

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

Wednesday, August 31, 2011

SEC Halts Fraud by Manager of Startup Quantitative Hedge Fund

The SEC announced an asset freeze against a Chicago-area money manager, Belal K. Faruki, and his advisory firm Neural Markets LLC .  The SEC charged them with lying to prospective investors in their startup quantitative hedge fund. A federal court today entered a preliminary injunction order in the case, which was unsealed earlier this week.

The SEC alleges that defendants solicited sophisticated individuals to invest in the "Evolution Quantitative 1X Fund," a hedge fund they managed that supposedly used a proprietary algorithm to carry out an arbitrage strategy involving trading in liquid exchange-traded funds (ETFs). Faruki and Neural Markets falsely represented the existence of investor capital and that trading was generating profits when, in fact, losses were being incurred. They defrauded at least one investor out of $1 million before confessing the losses, and were soliciting other wealthy investors before the SEC obtained a court order to halt the scheme.

The SEC filed its complaint under seal on Aug. 10, 2011, and that same day the court granted the SEC's request for emergency relief including a temporary restraining order and asset freeze. The court lifted the seal order on August 29, and the preliminary injunction order entered today with the defendants' consent continues the terms of the temporary restraining order until the final resolution of the case.

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