Securities Law Prof Blog

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

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Wednesday, October 3, 2012

SEC Charges Two Hedge Fund Managers with Fraud & Issues Warning to Investors

The SEC separately charged two hedge fund managers and their firms with lying to investors about how they were handling the money invested in their respective hedge funds. The charges are the latest in a series of actions taken by the SEC Enforcement Division and its Asset Management Unit against hedge fund-related misconduct in the markets.


In one case, the SEC alleges that San Francisco-based hedge fund manager Hausmann-Alain Banet and his firm Lion Capital Management stole more than a half-million dollars from a retired schoolteacher who thought she was investing her retirement savings in Banet’s hedge fund. In the other case, the SEC charged Chicago-based hedge fund managers Norman Goldstein and Laurie Gatherum and their firm GEI Financial Services with fraudulently siphoning at least $147,000 in excessive fees and capital withdrawals from a hedge fund they managed.

Since the beginning of 2010, the SEC has filed more than 100 cases involving hedge fund malfeasance such as misusing investor assets, lying about investment strategy or performance, charging excessive fees, or hiding conflicts of interest.

The SEC today issued an investor bulletin detailing some of those cases as examples of why investors must rigorously evaluate a hedge fund investment before making one.  The bulletin, prepared by the Office of Investor Education and Advocacy, recommends that investors understand a hedge fund’s investment strategy and its use of leverage and speculative techniques before making the investment. It also explains the need to evaluate a hedge fund manager’s potential conflicts of interest and take other steps to research those managing the fund.( Download Ib_hedgefunds[1])

http://lawprofessors.typepad.com/securities/2012/10/sec-charges-two-hedge-fund-managers-with-fraud-issues-warning-to-investors.html

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