The SEC barred a private fund manager and ordered him to pay nearly $3 Million in disgorgement for creating fake identities and performance track record. The SEC alleges that the respondent created on-line doppelgangers and hired an internet-based search engine manipulator to fabricate search results to make it appear that his firm was managed by several legitimate investment management professionals. Instead, the respondent, who had a criminal background, was the sole owner/operator. The SEC also accused the fund manager of supplying Morningstar with false performance data and history so that the fund could secure a 5-star rating. In addition to the SEC penalties, the fund manager is serving a 60-month prison sentence.
OUR TAKE: If you are an investor or an adviser that recommends third party managers, you need to conduct significant due diligence, which necessarily goes beyond a web search and a Morningstar rating. As this case shows, a fraudster can manipulate internet results and fool databases.