A hedge fund manager who was charged by the Securities and Exchange Commission (SEC ) in 2012 with defrauding clients around the world he allegedly hid major losses during the financial crisis while assuring investors that their investments were performing quite well has again been charged with fraud, this time based on his dealings with a Bahamas-based brokerage firm. Despite having his assets frozen in 2012, he managed to stay in the game and under the SEC radar until now.
Claimed $1.5 Billion in AUM
In 2012, the fund manager claimed that he had $1.5 billion in assets under management on behalf of investors around the world. Despite suffering losses due to investment in the Bernard Madoff debacle and a failed derivatives investment, he boasted of benchmark-beating returns in order to attract new investors. He made use of both a Panamanian firm and a Hong Kong-based firm to dupe investors.
Manager Created False Statements
The current case alleges that the manager colluded with the Bahamas firm by creating false statements, which overstated the value of investors assets by more than $150 million while the Bahamas-based company acted as custodian over the funds assets. The firm allowed the manager to prepare false statements on their letterhead, and the firm routinely provided the false account statements to auditors and others acting on behalf of the hedge funds investors.
$45 Million Misappropriated
According to the SEC, the Bahamas firm allowed the hedge fund manager to misappropriate over $45 million of investor funds by transferring money at the managers request from investor accounts to accounts that were directly under the managers control. Furthermore, the manager used investor funds to pay the brokerage firm more than $5 million in exchange for assisting with the scheme.
According to Timothy Warren, associate director of the SECs Chicago Regional Office: We allege that Brown and his firm enabled [the hedge fund managers] scheme by providing investors with false assurances about who was holding their money and how much money they had in their accounts.
Brokerage Firm Not Custodian Since 2009
According to SEC charges filed in U.S. District Court in Chicago, the Bahamas firm did not have custody of most of the assets listed on investor account statements since 2009, yet they continued to represent to the hedge funds investors that they were in fact the custodian of those assets.
Investigation Continuing
The SEC charges thus far have alleged violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5; however, the investigation is continuing, and further charges could be filed in the case.
Peyman Khosravani is a global blockchain and digital transformation expert with a passion for marketing, futuristic ideas, analytics insights, startup businesses, and effective communications. He has extensive experience in blockchain and DeFi projects and is committed to using technology to bring justice and fairness to society and promote freedom. Peyman has worked with international organizations to improve digital transformation strategies and data-gathering strategies that help identify customer touchpoints and sources of data that tell the story of what is happening. With his expertise in blockchain, digital transformation, marketing, analytics insights, startup businesses, and effective communications, Peyman is dedicated to helping businesses succeed in the digital age. He believes that technology can be used as a tool for positive change in the world.
