U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20761 / September 30, 2008
SEC v. William H. Eichengreen and David L. Myatt, Case No. 08-C-5564 (N.D. Ill.)
SEC Sues Prime Bank Promoter and a Hedge Fund's Chief Compliance Officer for Fraud
The Securities and Exchange Commission (the "Commission") announced today that on September 29, 2008, it filed a civil action in the U.S. District Court for the Northern District of Illinois, charging David Myatt and William Eichengreen with violating the antifraud provisions of federal securities law based on their conduct involving a now-defunct hedge fund, Directors Performance Fund, LLC (the "Fund").
The Commission's Complaint alleges that Myatt defrauded the Fund by convincing Directors Financial Group, Ltd. ("DFG") — the Fund's investment adviser and managing member — to invest $25 million in a fraudulent "prime bank" scheme. The Complaint alleges that, among other misrepresentations, Myatt falsely claimed that:
In reality, the ATI Program was a sham designed to defraud investors. No trades ever took place and no profits were actually generated. Such "something-for-nothing" trading programs are entirely fictional. Moreover, the Federal Reserve does not oversee any such trading programs or license any individuals to conduct such trading.
The Commission's Complaint also alleges that the Fund's Chief Compliance and Chief Marketing Offier, William Eichengreen, (a) defrauded the Fund by falsifying the Fund's financial statements, thereby allowing DFG to take profit-based fees to which it was not entitled, and (b) defrauded prospective investors in the Fund (and DFG's individual investment adviser clients who invested in the Fund) by consistently misrepresenting the Fund's trading strategy, investments, and performance.
The Complaint seeks a court order permanently enjoining Eichengreen and Myatt from violating the antifraud provisions of the Securities Act of 1933 [Section 17(a)], the Securities Exchange Act of 1934 [Section 10(b) and Rule 10b-5], and from aiding and abetting violations of record keeping provisions of the Investment Advisers Act of 1940 [Section 204 and Rule 204-2]. The Complaint also seeks to enjoin Eichengreen from aiding and abetting violations of the antifraud provisions of the Advisers Act [Sections 206(1) and 206(2)] and seeks an order requiring Eichengreen and Myatt to pay a civil monetary penalty.
The Commission has previously sued DFG and its President, Sharon Vaughn, in connection with this matter. The Commission settled all claims against DFG and Vaughn and the Court distributed the Fund's assets to investors, ensuring that investors received their principal in full. For more information, see Litigation Release Nos. 19589 (Mar. 3, 2006) and 19985 (Jan. 31, 2007).
The U.S. Attorney's Office for the Northern District of Illinois charged Myatt and Warren in connection with this matter. On November 20, 2007, a jury convicted Warren on 11 wire fraud counts in connection with his fraud against DFG. On August 24, 2007, Myatt pled guilty to an obstruction of justice charge based on his misconduct.