SEC swoops on hedge funds

Losses and Lawsuits

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WASHINGTON, DC - The US Securities and Exchange Commission (SEC) has made a number of charges relating to separate alleged hedge fund frauds. Michael Lauer, head of two Connecticut-based hedge funds, has been ordered to pay $62 million in penalties for being found liable on SEC fraud charges. Lauer oversaw Lancer Management Group and Lancer Management Group II, and was accused in September 2008 of being the architect of a $1.1 billion investment swindle. Lauer overestimated valuations of his hedge funds between 1999 and 2002 and manipulated the prices of securities making up the funds' portfolios between 1999 and 2003. His fraud included distributing fake portfolio statements to investors, who lost around $500 million as a result.

The SEC obtained an emergency court order to freeze the assets of another Connecticut-based money manager and the hedge funds under his control. The regulator has charged Francesco Rusciano with forging monthly and yearly performance results, promising false returns, and misrepresenting assets within funds to fraudulently take more than $30 million from investors. The complaint says Rusciano forged brokerage account statements to make it appear that a hedge fund account had millions of dollars that did not exist.

Florida-based hedge fund manager Arthur Nadel has been indicted for an alleged $360 million investment fraud. He is charged by the US district court in Manhattan with 15 criminal counts, including securities fraud, wire fraud and mail fraud. Prosecutors say around 350 people invested in Nadel's funds, and he provided misleading information on the funds' historical returns and assets while siphoning off millions of dollars in fees. Nadel is now in prison in New York after failing to meet conditions set for his $5 million bail, and at first fled fraud charges brought by the SEC in January. He later turned himself in to police in Florida, and his lawyers say he will plead not guilty on all counts. Each of the 15 counts carries a $5 million fine and a maximum sentence of 20 years.

Another Floridian investment adviser has been targeted by an SEC investigation. William Gunlicks and his firm Founding Partners Management were the target of an emergency asset freeze over charges of misrepresenting the nature of $550 million in investments. The regulator alleges the firm defrauded investors by claiming its primary fund had loaned money to two firms - Sun Capital and Sun Capital Healthcare - to purchase mostly short-term, highly liquid account receivables to secure the loans. The SEC says the firms had in fact purchased longer-term account receivables that were illiquid and much riskier in nature. Gunlicks and Founding are also accused of putting investors' assets in jeopardy by fraudulently soliciting for new investment in their primary fund without disclosing what the regulator called "significant redemption requests".

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