U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20723 / September 17, 2008
SEC v. Lydia Capital, LLC et al., U.S. District Court for the District of Massachusetts, 07-CV-10712-RGS
Court Enters Final Judgment Against Massachusetts Hedge Fund Manager in Fraud Scheme
The Securities and Exchange Commission announced today that the Massachusetts federal district court entered a Final Judgment by consent on September 16, 2008 against defendant Evan K. Andersen, of Boston, Massachusetts, in connection with a civil injunctive action filed in April 2007 by the Commission against Andersen, his business partner, and Lydia Capital, LLC, a registered investment adviser based in Boston, Massachusetts. The Final Judgment enjoined Andersen, a principal of Lydia, from engaging in future violations of the antifraud provisions of the federal securities laws and holds him liable for $2,350,000 in disgorgement of profits from the conduct alleged in the Commission’s complaint, plus prejudgment interest of $177,089, but waived all except $1.8 million of the disgorgement and prejudgment interest, and did not impose a civil penalty, based on Andersen’s financial condition.
The Commission originally filed its action against Andersen on April 12, 2007 and filed an amended complaint on May 1, 2007. The amended complaint alleged that from June 2006 through April 2007, Andersen and his business partner, Glenn Manterfield, 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, a hedge fund managed by Lydia. The amended complaint alleged that the defendants told investors that they intended to use the hedge fund’s assets to acquire a portfolio of life insurance polices in the life settlement market. According to the amended complaint, Andersen, Lydia, and Manterfield made a series of material misrepresentations and omissions, including: (1) materially overstating, and in some instances completely fabricating the hedge 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 against him in England; (4) lying about how the hedge fund planned to address certain material risks and failing to disclose others; and (5) misstating the nature of the hedge fund’s assets and its investment process. In addition, the amended complaint alleges that Andersen and Manterfield took millions of dollars of investors’ funds by withdrawing investor monies to which they were not entitled.
On April 12, 2007, the U.S. District Court issued a temporary restraining order that, among other things, froze the three defendants’ assets. On May 3, 2007, the Court issued a preliminary injunction and ordered a continuation of an asset freeze of the defendants' assets.
The Final Judgment permanently enjoined Andersen from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The Final Judgment further holds Andersen liable for $2,350,000 million in disgorgement of profits gained as a result of the conduct alleged in the complaint, plus prejudgment interest of $177,089, for a total of $2,527,089. The Court, however, waived payment of all of Andersen’s disgorgement and prejudgment interest obligations except for $1,800,000, 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 Final Judgment. The Commission’s case against Lydia and Manterfield remains pending.
The Commission acknowledges the assistance of the Securities Division of the Secretary of State of the Commonwealth of Massachusetts, which previously filed a separate action against Andersen.