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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 22151 / November 10, 2011

SEC v. Chetan Kapur; Lilaboc, LLC d/b/a ThinkStrategy Capital Management, LLC; Civil Action No. 11-CIV-8094 (S.D.N.Y.)

SEC Charges New York-Based Hedge Fund Managers ThinkStrategy Capital and Chetan Kapur with Securities Fraud

The Securities and Exchange Commission today filed a civil injunctive action charging ThinkStrategy Capital Management, LLC (“ThinkStrategy”) and its sole managing director, Chetan Kapur, with deceptive conduct in connection with two hedge funds that they managed and advised: ThinkStrategy Capital Fund (“Capital Fund”) and TS Multi-Strategy Fund (“Multi-Strategy Fund”). The Capital Fund traded primarily equities, while the larger Multi-Strategy Fund holds investments in other hedge funds. At its peak in 2008, ThinkStrategy managed approximately $520 million in assets.

The SEC’s complaint alleges that over nearly seven years, ThinkStrategy and Kapur engaged in a pattern of deceptive conduct designed to bolster their track record, size, and credentials. In particular, ThinkStrategy and Kapur materially overstated the performance of the Capital Fund, giving investors the false impression that the fund’s returns were consistently positive and minimally volatile. The complaint also alleges that ThinkStrategy and Kapur repeatedly inflated the firm’s assets, exaggerated the firm’s longevity and performance history, and misrepresented the size and credentials of ThinkStrategy’s management team.

With respect to the Multi-Strategy Fund, a fund of hedge funds, the complaint alleges that ThinkStrategy and Kapur misstated the scope and quality of due diligence checks on certain managers and funds selected for inclusion in the portfolio. Specifically, the complaint alleges that ThinkStrategy and Kapur told investors that all funds in the portfolio would be selected using a rigorous due diligence process, including having reputable service providers, but instead selected several funds that failed to meet this standard. As a result, the Multi-Strategy Fund made investments in certain hedge funds that were later revealed to be Ponzi schemes or other serious frauds, including Bayou Superfund, Valhalla/Victory Funds, and Finvest Primer Fund. Had ThinkStrategy adhered to its stated due diligence standards, and required audited financial statements certified by bona fide accounting firms, the Multi-Strategy Fund may not have invested detrimentally in those funds.

The SEC’s complaint, which was filed in the U.S. District Court for the Southern District of New York, charges ThinkStrategy and Kapur with violations of 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 Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The complaint seeks permanent injunctions, disgorgement and prejudgment interest thereon, and civil monetary penalties against ThinkStrategy and Kapur.

Without admitting or denying the allegations in the complaint, ThinkStrategy and Kapur have consented to the entry of a judgment permanently enjoining them from violating the above mentioned provisions, imposing a civil monetary penalty, and ordering them to pay disgorgement and prejudgment interest in amounts to be determined by the Court upon motion of the Commission. The settlements are subject to Court approval. In addition, Kapur has consented to the entry of an SEC order barring him from association with any investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.

 

http://www.sec.gov/litigation/litreleases/2011/lr22151.htm


Modified: 11/10/2011