Brittany L. Brown is a Law Clerk in our Miami office .
The SEC's case against a hedge fund owner who allegedly funneled hundreds of millions into a $3.5 billion Ponzi scheme will be left up to a jury to decide. U.S. District Judge Ann D. Montgomery declined both sides' motions for summary judgment, finding instead that genuine issues of fact exist, thereby prompting a jury trial.
The SEC filed its case against the hedge fund owner in 2011, alleging that investors were falsely assured that their money would be safeguarded by "lockbox accounts." In its motion for summary judgment, the SEC argued that the offering materials and descriptions of lockbox accounts were misleading and fraudulent. Judge Montgomery refused to support the SEC's argument at the summary judgment stage and instead found that genuine issues of fact exist as to whether the lockbox representations were false or misleading.
According to the SEC, the hedge fund owner and related companies received more than $93 million in fees after taking in more than $459 million from at least 165 investors. The SEC claims that the hedge fund owner was fully aware of the scheme, in which the Ponzi scheme orchestrator represented to investors that their money was being used to purchase merchandise to sell to big-box retailers.
In its case against the hedge fund owner, the SEC claims that the offering materials given to investors buying interests in the funds were misleading. The SEC alleges that the offering materials led investors to believe that payments being made were by the big-box retailers themselves rather than by the schemer's companies. According to the SEC, if the hedge fund owner had looked into the accounts, he would have discovered the fraud. However, the hedge fund owner argues that the lockbox representations were merely examples of normal operating procedures. Ultimately, Judge Montgomery found that a jury could go either way as to whether the representations were actually misleading.
Also at issue were representations in the offering materials relating to the due diligence conducted by the hedge funds and whether these representations were fraudulent. Again, Judge Montgomery found this to be a fact issue for the jury to decide and denied both parties' motions for summary judgment.
Complaint filed by the SEC:
www.sec.gov/litigation/complaints/2011/comp21906.pdf
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.