The SEC charged
an unregistered day trader for lying about his trading success and misappropriating
client funds. The defendant convinced clients to hire him by asserting that
that he had done very well as a day trader over several years and then promised
over 50% annualized returns. Once retained,
the trader did very poorly and siphoned client assets for personal
expenses. According to the SEC, he then
concealed his misconduct by delivering false account statements and implementing
a microcap wash sale scheme. The
defendant also faces criminal charges brought by the U.S. Attorney’s Office for
the Eastern District of New York.
Lying about your investment track record constitutes securities fraud, subjecting you to civil and criminal penalties. Do not make performance claims unless you can affirmatively support your claims with hard data.
It is a HUGE warning sign when a fund manager fails to deliver audited financial statements, regardless of the ostensible reasons for delay. What may be most shocking is that this firm engaged in unlawful conduct for at least 11 years until the SEC uncovered wrongdoing during a routine OCIE exam in 2018.
OUR TAKE: We suspect that many public companies are cheering this action because the SEC seeks to chill a short seller from disseminating negative information for financial gain. In this case, the SEC maintains that the hedge fund made false factual statements. This type of case will not help prevent negative opinions based on accurate facts.