U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21450 / March 15, 2010
Securities Exchange Commission v. Stephen X. Kim and Spyglass Management, L.P., Defendants, Civil Action No. 4:10-cv-00816 (S.D. Tx)(March 11, 2010)
SEC CHARGES INVESTMENT ADVISER WITH FRAUD
On March 11, 2010, the Securities and Exchange Commission ("Commission") filed a civil injunctive action against Stephen X. Kim and Spyglass Management, L.P. ("Spyglass") for their roles in defrauding Spyglass Capital Partners, L.P. (the "fund"), a pooled investment vehicle or "hedge fund" managed by Kim through Spyglass.
In its settled Complaint, filed in the United States District Court for the Southern District of Texas, the Commission alleges that between in 2004 and 2006, Kim and Spyglass raised approximately $4.7 million from investors located primarily in Houston Texas using offering materials that contained misleading information relating to Kim's education, business experience, and compensation. The SEC also alleges that Kim falsely told investors that he would pool their funds and employ an investment strategy of trading Collateralized Mortgage Obligations ("CMO") and other securities, and that Kim would manage risk through a "dynamic hedging strategy." Unfortunately, the SEC alleges, Kim and Spyglass failed to employ any hedging strategy to manage risk, and the fund incurred over $2 million in losses. Rather than disclose the losses to investors, the SEC alleges, Kim had Spyglass send false reports to investors indicating that the fund was profitable, and then Kim directed the fund to make approximately $1.7 million in Ponzi payments to investors. Finally, the SEC alleges that Kim misappropriated approximately $1.5 million of the hedge fund's remaining assets to repay several outstanding personal obligations.
Without admitting or denying the allegations contained in the Commission's Complaint, Kim and Spyglass have consented to the entry of a final judgment permanently enjoining them 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 Commission took into consideration a separate private action against Kim and Spyglass filed in federal district court. The Commission's settlement with Kim and Spyglass is subject to the approval of the United States District Court for the Southern District of Texas.
See Also: SEC Complaint