The Securities and Exchange Commission (SEC) Recently Charged a West Palm Beach, Florida based Hedge Fund with Fraud
The Securities and Exchange Commission (SEC) recently charged a West Palm Beach, Florida based hedge fund with fraud. According to the complaint, Weston Capital Asset Management LLC, and its founder and president Albert Hallac engaged in fraud by illegally draining more than $17 million from a hedge fund they managed and transferred the money to a consulting and investment firm known as Swartz IP Services Group Inc. The transaction went against the hedge fund’s stated investment strategy and wasn’t disclosed to investors, who received account statements falsely portraying that their investment was performing as well or even better than before. Weston Capital’s former general counsel Keith Wellner assisted the activities. The SEC further alleges that out of the transferred investor proceeds, Hallac, Wellner, and Hallac’s son collectively received $750,000.00 in payments from Swartz IP. Weston Capital and Hallac also wrongfully used $3.5 million to pay down a portion of a loan from another fund managed by the firm.
“Investment advisers owe their clients a fiduciary duty of utmost good faith and full disclosure about what they’re doing with their money,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office. “Weston and Hallac dishonored that duty with Wellner’s assistance by secretly steering investor proceeds to a third party and then pocketing some of those funds.”
Weston Capital, Hallac, and Wellner agreed to settle the SEC’s charges along with Hallac’s son Jeffrey Hallac, who is named as a relief defendant in the SEC’s complaint for the purposes of recovering ill-gotten gains in his possession. Wellner and Jeffrey Hallac each also agreed to pay $120,000 in disgorgement.
Takeaway
While this settlement is by no means a large settlement in financial terms – especially given some of the recent SEC settlements involving fraud, FCPA violations, and other egregious conduct – the settlement is a strong reminder that the SEC will continue to examine more registered investment advisers, including advisers attached to private equity and hedge funds.
Further, in this case, the fund’s general counsel appears to have been actively involved in the fraud. In fact, indictments of general counsels are becoming increasingly common-place, e.g., general counsel’s of GlaxoSmith Kline and Detroit’s Pension Fund. Indeed, Laura Stevens, the assistant general counsel for GlaxoSmith Kline, was acquitted after suffering through two separate indictments, but after resigning from GSK Ms. Stevens cautioned: “I think the criminalization of the practice of law is here, and I don’t think it’s necessarily going away…The government will continue to be aggressive in looking at in-house counsel.” Recognizing that this case did not involve allegations of criminal conduct, the message is the same: general counsels may wind up in the cross-hairs of a civil enforcement action or a criminal investigation.
The SEC press release is available here
Author: Andrew Feldman
Mr. Feldman represents professionals, corporations, health care providers, and health care marketers in government investigations and prosecutions throughout the United States. Mr. Feldman works tirelessly for his clients from the time an investigation begins until the time a jury renders a verdict.
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