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SEC Charges California and Illinois Based Hedge Fund Managers With Investment Fraud

Meyer Wilson

San Francisco and Chicago Hedge Fund Managers Charged with Defrauding Investors in SEC Hedge-Fund Crackdown

The Securities and Exchange Commission has charged twobrokerage firms and their managers for lying to investors. The SEC claimed that the hedge fund managers falsified reports of how invested money was being handled. The charges against the hedge fund managers are the latest in a series of more than 100 Complaints filed against hedge fund managers and firms since 2010.

According to Robert Khuzami, Director of the SEC’s Division of Enforcement:

Hedge fund frauds have lured even the most sophisticated investors using the siren song of outsized returns or secured and guaranteed investments. The SEC will continue to file enforcement actions against hedge fund managers and firms as long as fraudsters increasingly capitalize on the cachet of hedge funds.

According to one of the Complaints filed last week, Hausmann-Alain Banet, a hedge fund manager at Lion Capital Management, participated in a scheme to defraud an investor, a retired schoolteacher, out of a half a million dollars. Banet allegedly led the investor to believe that the $550,000 investment would be invested in the stock market. Instead of investing the funds as represented, however, Banet allegedly took the money and used it to pay for his personal and business expenses. The Complaint further claims that Banet provided the teacher with falsified account statements in order to cover up the alleged scheme.

Banet also faces criminal mail fraud, wire fraud, and money laundering charges in connection to the alleged scheme. California authorities arrested him on Oct. 3. A bail hearing has been scheduled for tomorrow, Oct. 9, according to Bloomberg News.

The second Complaint filed last week accuses two hedge fund managers, Norman Goldstein and Laurie Gatherum of GEI Financial Services, of fraud. According to the complaint, Goldstein and Gatherum stole more than $147,000 from investors by charging exorbitant fees and capital withdrawals.

According to the Complaint, Goldstein, Gatherum, and GEI neglected to tell the hedge fund’s investors how their fees would be calculated. They also failed to disclose the facts that Goldstein, who was allegedly responsible for all of the investment decisions made on behalf of GEI’s clients, lost his securities registration in 2011 and had been barred from providing investment advice in Illinois.