U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20046 / March 16, 2007
SEC v. Burton G. Friedlander, et al., Civil Action No. 01 Civ. 4683 (KMW) (S.D.N.Y.)
Burton Friedlander Consents To Permanent Injunction
On February 21, 2007, United States District Judge Kimba Wood entered final judgments by consent against Burton Friedlander and four entities he formerly controlled. These final judgments conclude the U.S. Securities and Exchange Commission's action, except for a final distribution by the court-appointed receiver.
The Commission filed its original complaint in May 2001, alleging fraud in connection with Friedlander's management of the assets of Friedlander International Limited, an overseas hedge fund. The Commission alleged that Friedlander inflated the hedge fund's net asset value by improperly and arbitrarily valuing certain unlisted securities of a company in which Friedlander and entities he controlled had heavily invested. The Commission's complaint also alleged that Friedlander engaged in "portfolio pumping" by purchasing a thinly-traded common stock as part of a manipulative scheme to inflate the value of that stock and to inflate the hedge fund's net asset value.
The Commission's amended complaint, filed in October 2003, additionally alleged that, in connection with a separate pooled investment fund he managed, Friedlander converted investors' proceeds to his own benefit. The amended complaint alleged that Friedlander provided pooled fund investors with false asset reports, portions of which were on the letterhead of an independent audit firm. However, the audit firm did not prepare or assist in preparing those asset reports. The audit firm also did not authorize the use of its letterhead, nor did it sign or approve any of these asset reports.
The Commission's case was stayed pending the resolution of a criminal indictment, U.S. v. Friedlander (03 Cr. 1173 (JGK)(S.D.N.Y.), against Friedlander based upon the same conduct alleged in the Commission's amended complaint. On May 25, 2005, Friedlander pleaded guilty to a felony count of fraud in violation of Section 206 of the Investment Advisers Act of 1940 (the "Advisers Act"). On March 9, 2006, Friedlander was sentenced to thirty months incarceration, two years of supervised release, and fined $50,000.
The consent judgments resolving the Commission's civil complaint permanently enjoin Friedlander, and the entities he formerly controlled, Friedlander Capital Management Corporation, Friedlander Limited Partnership, Friedlander International Limited, and Friedlander Management Limited, from violating Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. In addition, the judgments permanently enjoin Friedlander, Friedlander Capital Management, and Friedlander Management from violating Sections 206(1) and (2) of the Advisers Act.
In light of Friedlander's payment, forfeiture, and surrender of sums and assets totaling $4,875,674 in the Commission's action, the criminal action, and Friedlander's bankruptcy proceedings, and in light of his criminal conviction, the consent judgments do not impose disgorgement or penalties upon Friedlander or the entities he formerly controlled.
For further information see Litigation Release No. 17021 (June 1, 2001), Litigation Release No. 17315 (January 15, 2002), Litigation Release No. 18426 (October 24, 2003), and Advisers Act Release No. 2397 (June 16, 2005).