HEDGE FUND MANAGER HAS EMERGENCY ENFORCEMENT ACTION FILED AGAINST HIM BY SEC

Litigation Release No. 23197 / February 13, 2015
Securities and Exchange Commission v. Mozzam "Mark" Malik and American Bridge Investment Group, LLC, d/b/a Wolf Hedge LLC, Civil Action No. 15-1025 (RJS)
SEC Charges Hedge Fund Manager Mark Malik With Stealing Investor Funds

The Securities and Exchange Commission filed an emergency enforcement action to halt an ongoing fraud by Moazzam "Mark" Malik, a Pakistani citizen and New York City resident. The SEC charged Malik and his hedge fund with stealing money from his investors.

The SEC alleges that Moazzam "Mark" Malik falsely claimed to be operating a hedge fund with approximately $100 million in assets under management, and he solicited investors with promises of consistently high returns. Although he raised $840,774 from investors, his fund never made real investments and never held more than $90,177 in assets as Malik continually withdrew the cash and spent it as his own. Despite repeated demands from investors for the return of their money, Malik has flatly refused or delayed the bulk of their redemption requests. He allegedly went so far as to create a fictitious fund employee who sent one investor an e-mail claiming that Malik had died.

According to the SEC's complaint filed in U.S. District Court for the Southern District of New York, Malik has been continuing to solicit investors amid the redemption requests. His fund has changed its name several times since he created it in 2010. Malik initially called it Wall Street Creative Partners before changing it to Seven Sages Capital LP and then American Bridge Investment Group LLC. Most recently it has been known as Wolf Hedge LLC. Malik described his fund as "a privately held Global Investment Management firm dedicated to the individuals and institutions around the world."

The SEC alleges that Malik created a fictitious "Amanda Ebert" who was identified with a title of "Investor Relations, Wolf Hedge LLC" in e-mail communications with several investors. Malik included in the e-mails a purported photograph of Ebert that he copied off the Internet. The real-life woman in the photo does not know Malik and never authorized the use of her image in the e-mails.

The SEC's complaint charges Malik and American Bridge with violating Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and charges Malik with violations of Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The SEC is seeking a temporary restraining order to freeze their assets and prohibit them from committing further violations of the federal securities laws. The SEC seeks a final judgment ordering them to disgorge their ill-gotten gains plus prejudgment interest and pay financial penalties.

HEDGE FUND MANAGER RECEIVES 13 YEAR PRISON TERM FOR FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23185 / January 30, 2015

Securities and Exchange Commission v. Francisco Illarramendi, et al., Civil Action No. 3:11cv-78

United States v. Illarramendi, 3:11-cr-0041-SRU

Court Sentences Connecticut-Based Hedge Fund Manager to Thirteen Years in Prison

The Securities and Exchange Commission announced that on January 29, 2015, a federal court in Connecticut sentenced former Connecticut-based hedge fund manager Francisco Illarramendi to thirteen years in prison, followed by three years of supervised release. Illarramendi was also ordered to pay restitution to the victims of his fraud, in an amount to be determined at a future restitution hearing. This sentence was imposed on Illarramendi's guilty plea to two counts of wire fraud, one count of securities fraud, one count of investment advisor fraud, and one count of conspiracy to obstruct justice, to obstruct an official proceeding and to defraud the SEC.

The SEC's action against Illarramendi and others remains pending. In January 2011, the SEC charged Illarramendi and various entities owned or controlled by him, including investment advisers Highview Point Partners, LLC, and Michael Kenwood Capital Management, LLC, with engaging in a multi-year Ponzi scheme involving hundreds of millions of dollars. On February 3, 2011, the U.S. District Court for the District of Connecticut appointed a receiver in the case to marshal the assets of a number of entities formerly owned or controlled by defendants Illarramendi, Highview Point Partners, and Michael Kenwood Capital Management. The receiver has collected and distributed over $264 million to parties harmed by the defendants' alleged wrongdoing. The receiver plans to make additional distributions to harmed parties at a later time as additional funds become available.

Also, on August 3, 2011, the Commission issued an Order by consent barring Illarramendi from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.

The SEC acknowledges and appreciates the work of the U.S. Attorney's Office for the District of Connecticut and the Federal Bureau of Investigation.

SEC ANNOUNCES SETTLEMENT WITH BROTHER OF RAJ RAJARATNAM

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced that former hedge fund manager Rajarengan “Rengan” Rajaratnam has agreed to pay more than $840,000 and accept securities industry bars in order to settle the agency’s insider trading case against him.

The SEC filed civil charges in March 2013 against Rengan Rajaratnam for his role in the widespread insider trading scheme conducted by his brother Raj Rajaratnam and hedge fund advisory firm Galleon Management.  The insider trading occurred in securities of more than 15 companies for illicit gains totaling nearly $100 million.  The SEC has now obtained court judgments or settlements in Galleon-related enforcement actions against 35 defendants, resulting in approximately $165 million in monetary sanctions.

“We are pleased to have reached a favorable proposed resolution of our insider trading charges against Rengan Rajaratnam,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “The settlement ensures he’s out of the industry and paying a serious price for breaking the law.”

Rengan Rajaratnam, who became a portfolio manager at Galleon after co-founding hedge fund advisory firm Sedna Capital Management, neither admitted nor denied the SEC’s allegations in agreeing to the settlement that is subject to court approval.  The proposed final judgment would permanently enjoin Rengan Rajaratnam from violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and require him to pay $372,264.42 in disgorgement, $96,714.27 in prejudgment interest, and a $372,264.42 penalty.  Under the settlement, he also would be barred from association with any investment adviser, broker, dealer, municipal securities dealer, or transfer agent with the right to apply for reentry after five years.

The SEC’s investigation was conducted by John Henderson, Matthew Watkins, Diego Brucculeri, and James D’Avino in the New York Regional Office.  The case has been supervised by Sanjay Wadhwa, Senior Associate Director of the New York office, and Joseph Sansone, Deputy Chief of the Enforcement Division’s Market Abuse Unit.

SEC CHARGES FORMER HEDGE FUND MANAGER WITH TAKING EXCESSIVE FEES TO REMODEL HOME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced charges against a former hedge fund manager accused of fraudulently taking excess management fees from the accounts of fund clients and using their money to remodel his multi-million dollar home and buy a Porsche.

An SEC Enforcement Division investigation found that Sean C. Cooper improperly withdrew more than $320,000 from a hedge fund he managed for San Francisco-based investment advisory firm WestEnd Capital Management LLC.  While WestEnd disclosed to clients the withdrawal of annual management fees of 1.5 percent of each investor’s capital account balance, Cooper actually withdrew amounts that far exceeded that percentage.  He then transferred the money to personal bank accounts so he could spend it freely.  Cooper’s misconduct occurred for a two-year period until he ceased misappropriating fund assets when the SEC began an examination of WestEnd in April 2012.

WestEnd, which expelled Cooper and reimbursed the hedge fund once it became aware of his scheme, is being charged separately by the SEC for failing to effectively supervise him.  The firm agreed to pay a $150,000 penalty to settle the SEC’s charges.

“Cooper betrayed the hedge fund’s investors by lining his own pockets with fund assets that he had not earned,” said Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “His fraud went undetected because WestEnd had no internal controls to limit Cooper’s ability to withdraw excessive amounts from the fund.”

According to the SEC’s order instituting a litigated administrative proceeding against Cooper, he began indiscriminately withdrawing money from the hedge fund – WestEnd Partners L.P. – in March 2010.  Cooper mischaracterized the withdrawals as management fees in the fund’s books and records, but they bore no relation to the actual amount of fees that WestEnd had earned.  The SEC Enforcement Division alleges that, in reality, Cooper simply was using the hedge fund as his own private bank.  He had sole authority to transfer money out of the fund, and there were no controls in place at the firm to prevent him from making improper withdrawals.  Once he routed the money into his personal accounts, Cooper purchased a $187,000 Porsche amid other lavish spending.

The SEC Enforcement Division alleges that Cooper, a resident of New Orleans, willfully violated Sections 206(1), 206(2), 206(4), and 207 of the Investment Advisers Act of 1940 and Rule 206(4)-8.  Cooper is charged with aiding, abetting and causing WestEnd’s violations of Section 206(4) and Rule 206(4)-7.

According to the SEC’s order instituting a settled administrative proceeding against WestEnd, Cooper operated the hedge fund with little to no supervision from others at WestEnd, and he had sole discretion to calculate and wire out money that he claimed the fund owed to WestEnd.  Besides its failure to adopt any policies or procedures that imposed the necessary internal controls, WestEnd also failed to maintain several required books and records relating to its finances, including the management fees it collected from the fund.  

WestEnd consented to the entry of the order finding that it violated Sections 204, 206(4), and 207 of the Advisers Act and Rules 204-2(a)(1), (2), (6), and (7) and 206(4)-7.  The order also finds that WestEnd failed to reasonably supervise Cooper within the meaning of Section 203(e)(6) of the Advisers Act.  In addition to the financial penalty, WestEnd agreed to cease and desist from committing or causing future violations of these provisions without admitting or denying the findings.  The settlement also requires the firm to retain a compliance consultant.

The SEC’s investigation was conducted by Eric Brooks and Erin E. Schneider of the Asset Management Unit in the San Francisco Regional Office.  The SEC’s litigation against Cooper will be led by Sheila O’Callaghan and Mr. Brooks.  The SEC examination that led to the investigation was conducted by Ed Haddad, John Chee, Karah To, and Arturo Hurtado of the San Francisco office’s investment adviser/investment company examination program.

SEC SETTLES WITH HEDGE FUND MANAGER IN PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Settles Action Against Oregon-Based Hedge Fund Manager Yusaf Jawed, Who Masterminded a Ponzi Scheme

The United States Securities and Exchange Commission announced that on Sept. 11, 2013, final judgments were entered against Yusaf Jawed and his two entities (Grifphon Asset Management, LLC and Grifphon Holdings, LLC), which enjoin them from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, Section 17(a) of the Securities Act, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act and Rule 206(4)-8 thereunder and order them to pay disgorgement and interest of $33,909,974. The Commission's previously filed complaint alleged that Jawed through the two entities he controlled masterminded a long-running, $30-plus million Ponzi scheme that defrauded more than 100 investors in the Pacific Northwest and across the country.

Based on the final judgment against Jawed, the Commission issued today an Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions that bars Jawed from association with any investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.

SEC OBTAINS $13.9 MILLION PENALTY AGAINST FORMER GOLDMAN SACHS BOARD MEMBER

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C., July 17, 2013 — The Securities and Exchange Commission today obtained a $13.9 million penalty against former Goldman Sachs board member Rajat K. Gupta for illegally tipping corporate secrets to former hedge fund manager Raj Rajaratnam. Gupta also is permanently barred from serving as an officer or director of a public company.

The SEC previously obtained a record $92.8 million penalty against Rajaratnam for prior insider trading charges.

“The sanctions imposed today send a clear message to board members who are entrusted with protecting the confidences of the companies they serve,” said George S. Canellos, Co-Director of the SEC’s Division of Enforcement. “If you abuse your position by sharing confidential company information with friends and business associates in exchange for private gain, you will be prosecuted to the fullest extent by the SEC.”

In its complaint filed in late 2011, the SEC alleged that Gupta disclosed confidential information to Rajaratnam about Berkshire Hathaway Inc.’s $5 billion investment in Goldman Sachs as well as nonpublic details about Goldman Sachs’s financial results for the second and fourth quarters of 2008.

In addition to imposing the civil penalty, the order issued today by the Honorable Jed S. Rakoff of the U.S. District Court for the Southern District of New York enjoins Gupta from future violations of the securities laws, and permanently bars him from acting as an officer or director of a public company, and from associating with any broker, dealer, or investment adviser.

In a parallel criminal case arising out of the same facts, the SEC provided significant assistance to the U.S. Attorney’s Office for the Southern District of New York in its successful criminal prosecution of Gupta, who was found guilty on June 15, 2012 of one count of conspiracy to commit securities fraud and three counts of securities fraud. Following the jury verdict, Gupta was sentenced on Oct. 24, 2012, to a term of imprisonment of two years followed by one year of supervised release, and ordered to pay a $5 million criminal fine.

On Dec. 26, 2012, the SEC obtained a final judgment ordering Rajaratnam to disgorge his share of the profits gained and losses avoided as a result of the insider trading based on Gupta’s tips, plus prejudgment interest.

HEDGE FUND MANAGER FOUND GUILTY OF SECURITIES FRAUD

FROM: SECURITIES AND EXCHANGE COMMISSION

Hedge Fund Manager James Fry, Previously Sued by the SEC for Fraud, Found Guilty of Securities Fraud, Wire Fraud, and Making False Statements to the SEC


The Securities and Exchange Commission announced that on June 12, 2013 a jury found Minneapolis-area hedge fund manager James Fry guilty of five counts of securities fraud, four counts of wire fraud, and three counts of making false statements to the SEC during investigative testimony. Sentencing on these charges will be held on a later date. The U.S. Attorney's Office for the District of Minnesota had filed criminal charges against Fry on July 19, 2011.


Fry is a defendant in a pending civil injunctive action filed by the SEC on November 9, 2011 in the United States District Court for the District of Minnesota. The charges leveled by the SEC stem from the same set of facts alleged by the U.S. Attorney's Office. The SEC's complaint alleged that Fry fraudulently funneled more than $600 million of investor money into a Ponzi scheme operated by Minnesota businessman Thomas Petters. During the period in which he invested with Petters, Fry and his hedge fund management company collected more than $42 million in fees. The SEC's complaint further alleged that Fry falsely assured investors and potential investors that the flow of their money would be safeguarded by collateral accounts and described a phony process for protecting their assets. When Petters was unable to make payments on investments held by the funds he managed, Fry concealed it from investors by secretly executing note extensions with Petters.

On February 14, 2012, the Hon. Richard H. Kyle, U.S. District Judge for the District of Minnesota, stayed the SEC's action against Fry pending the resolution of his criminal case.



 

MAN CHARGED WITH GIVING INSIDER INFORMATION TO HEDGE FUND MANAGER

FROM: U.S. SECURITITES AND EXCHANGE COMMISSION

Washington, D.C., September 4, 2012 - The Securities and Exchange Commission today charged a California man with illegally tipping a hedge fund manager with inside information about Nvidia Corporation’s quarterly earnings that he learned from his friend who worked at the company.

The SEC alleges that Hyung Lim of Los Altos, Calif., received $15,000 and stock tips about a pending corporate acquisition for regularly providing a fellow poker player, Danny Kuo, with nonpublic details ahead of Nvidia’s quarterly earnings announcements. Kuo, a hedge fund manager, illegally traded on the information and passed it on to multi-billion dollar hedge fund advisory firms Diamondback Capital Management LLC and Level Global Investors LP. The SEC charged Kuo and the firms among others earlier this year as part of its widespread investigation into the trading activities of hedge funds.

"These hedge fund traders were eager to find an edge in an otherwise competitive marketplace, and Lim provided them that edge for a price," said Sanjay Wadhwa, Associate Director of the SEC’s New York Regional Office and Deputy Chief of the SEC Enforcement Division’s Market Abuse Unit. "Now one more participant in this sprawling scheme is being held accountable for his illegal transgressions."

In a parallel action, the U.S. Attorney for the Southern District of New York today announced criminal charges against Lim.

According to the SEC’s complaint filed in federal court in Manhattan, Kuo and the hedge funds made nearly $16 million trading in Nvidia securities based on Lim’s inside information. Lim lives in Los Altos, Calif., and is employed in the accounting department of a semiconductor firm. Lim and Kuo met at poker parties organized by a mutual friend.

The SEC alleges that during at least 2009 and 2010, Lim regularly obtained detailed information about the contents of Nvidia’s upcoming quarterly earnings announcements from his friend who worked at Nvidia. Lim’s source provided him with not just one but a series of tips, which grew more accurate and reliable as Nvidia finalized its financial results for a given quarter and prepared to report them publicly. Lim typically learned the nonpublic information in phone conversations with his Nvidia friend, and within one minute of ending a conversation Lim would immediately call Kuo to relay the latest inside information. Lim provided Kuo such nonpublic details as Nvidia’s calculation of its revenues, gross profit margins, and other important financial metrics before the company made those figures public in its quarterly earnings announcements.

The SEC alleges that Lim was compensated by Kuo for the confidential Nvidia information that he provided. Kuo wired $5,000 to a Las Vegas casino to pay a debt for Lim, and later Kuo made two $5,000 cash payments to Lim. Kuo also provided Lim with nonpublic information about a pending corporate acquisition, which Lim used to make more than $11,000 in trading profits.

The SEC’s complaint charges Lim with violating the anti-fraud provisions of U.S. securities laws and seeks a final judgment ordering him to disgorge his ill-gotten gains and those of his tippees plus interest, ordering him to pay a financial penalty, permanently enjoining him from future violations, and barring him from serving as an officer or director of a public company.

The SEC’s investigation, which is continuing, has been conducted by Stephen Larson, Daniel Marcus and Joseph Sansone, who are members of the SEC’s Market Abuse Unit in New York, along with Matthew Watkins, Neil Hendelman, Diego Brucculeri and James D’Avino of the New York Regional Office. The SEC thanks the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation for their assistance in this matter.

MANAGER OF HEDGE FUNDS CHARGED WITH MAKING MISREPRESENTATIONS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
SEC Charges Former Sky Bell Hedge Fund Manager With Making Misrepresentations In Selling And Recommending His Hedge Funds

On August 27, 2012, the Securities and Exchange Commission filed a settled civil action in the United States District Court for the Northern District of California against Gary R. Marks. The Commission’s complaint alleged that Marks managed and recommended various fund of funds hedge funds through Sky Bell Asset Management, Inc. (an investment adviser formerly registered with the Commission), including the Agile Sky Alliance Fund that was co-managed with the Agile Group, PipeLine Investors, Night Watch Partners, and Sky Bell Offshore Partners (collectively "Sky Bell Hedge Funds"). The Commission’s complaint alleged that between at least 2005 and September 2007, Marks negligently misrepresented the level of correlation and diversification among certain Sky Bell Hedge Funds. Furthermore, the Complaint alleged that between at least 2005 and 2008, Marks also: a) made unsuitable investment recommendations to certain advisory clients to invest most of their investment portfolio in Sky Bell Hedge Funds, b) negligently failed to disclose that PipeLine Investors invested significantly in a purported subadviser’s fund, and c) negligently provided misleading information to certain investors about the liquidity problems at the Agile Sky Alliance Fund.

Without admitting or denying the allegations in the Commission’s complaint, Marks consented to the entry of a proposed Final Judgment enjoining him from future violations of Sections 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 promulgated thereunder, and Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. The proposed Final Judgment also orders Marks to pay disgorgement of $321,702, a penalty of $100,000, and prejudgment interest. The proposed settlement is subject to the approval of the district court.