A private fund manager was barred from the industry for misleading potential investors about the success of his trading strategy. The respondent claimed to invest in a diversified portfolio of publicly-traded securities with a proprietary algorithm to limit downside risk. Instead, he pursued a highly risky unhedged options strategy that wiped out the fund’s assets. The SEC alleges that the respondent hid his losses by sending out false account statements and tax forms. The SEC charged the state-registered adviser with securities fraud. The parties agreed to additional proceedings to determine penalties and disgorgement.
This case should be read by any potential client/investor enticed by a too-good-to-be-true investment pitch. It is unfortunate when legitimate investment managers have to compete for business against wrongdoers who outright lie about their performance.