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MA Hedge Fund Manager Ordered to Pay $2.53M For Deceptive Investment Scheme
SEC v. Lydia Capital, LLC et al.
No. 07-CV-10712-RGS, U.S. District Court for the District of Massachusetts, 09/12/2008
Companies Mentioned: Lydia Capital, LLC
Holding
The U.S. District Court for the District of Massachusetts entered a final judgment by consent against hedge fund manager Evan K. Andersen, of Boston, Massachusetts, in connection with a civil injunctive action filed in April 2007 by the Securities and Exchange Commission ("SEC") against Andersen, his business partner Glen Manterfield, and Lydia Capital, LLC (“Lydia”), a registered investment adviser based in Boston, Massachusetts, the SEC said in an official announcement. The final judgment in particular permanently enjoined Andersen from violating the anti-fraud provisions of the Securities Exchange Act of 1934, and of the Investment Advisers Act of 1940. The judgment further held Andersen liable for $2.35 million in disgorgement of profits gained as a result of the conduct alleged in the amended complaint, plus prejudgment interest of $0.18 million, for a total of $2.53 million. The district court, however, waived payment of all of Andersen’s disgorgement and prejudgment interest obligations except for $1.80 million, and did not impose a civil penalty, based on his financial condition. Andersen consented, without admitting or denying the allegations, to the entry of the judgment. The SEC’s case against Lydia and Manterfield remained pending.
Detailed Summary
The SEC filed an amended complaint against all three defendants on May 1, 2007. The SEC’s amended complaint alleged that, between June 2006 and April 2007, Manterfield and Andersen, acting through Lydia, engaged in a scheme to defraud more than 60 investors, who invested approximately $34 million in Lydia Capital Alternative Investment Fund LP ("Fund"), an unregistered hedge fund managed by Lydia. See http://www.sec.gov/litigation/litreleases/2007/lr20102.htm.
The amended complaint alleged that defendants told investors that they intended to use the Fund’s assets to acquire a portfolio of life insurance polices in the life settlement market. According to the SEC, while the Fund did acquire interests in some insurance polices, defendants materially misled investors about their operations and misappropriated at least $2 million of investor funds. Id.
According to the amended complaint, Manterfield, Andersen, and Lydia sold limited partnership interests and retained investors in the Fund through a series of material misrepresentations and omissions, including but not limited to: (1) materially overstating, and in some instances completely fabricating the Fund’s performance; (2) inventing business partners, offices, and investors in an attempt to legitimatize the firm and concealing the truth as to why key vendors and banks ceased relationships with the Defendants; (3) lying about Manterfield’s significant criminal history, and failing to disclose a February 2007 criminal asset freeze in England; (4) lying about how the Fund planned to address certain material risks and failing to disclose others; and (5) misstating the nature of the Fund’s assets and its investment process. In addition to making serious material misrepresentations and omissions, the Amended Complaint alleged that Manterfield and Andersen misappropriated millions of dollars of investors’ funds by withdrawing investor monies to which they were not entitled. Id.
On April 12, 2007, in response to the SEC’s request for emergency relief, the district court issued a temporary restraining order that, among other things, froze defendants’ assets. On May 3, 2007, following a hearing before the district court on May 2, 2007, the district court issued a consented-to preliminary injunction and ordered a continuation of an asset freeze of the defendants’ assets. Id.
View a PDF of the settlement.Service
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