U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23026 / June 23, 2014
Securities and Exchange Commission v. Weston Capital Asset Management LLC, et al., Civil Action No. 14-cv-80823 (S.D. FL)
The Securities and Exchange Commission filed a civil action in the United States District Court for the Southern District of Florida against Weston Capital Asset Management LLC and its founder and president Albert Hallac of Palm Beach, Florida, for violations of antifraud provisions, and against the firm's former general counsel, chief compliance officer, and chief operating officer Keith Wellner of New York, New York for aiding and abetting violations. The complaint also names Hallac's son, Jeffrey Hallac, a managing member at Weston Capital, as a relief defendant.
According to the SEC's complaint, Weston Capital and Hallac illegally drained more than $17 million from a hedge fund they managed and transferred the money to a consulting and investment firm known as Swartz IP Services Group Inc. The transaction went against the hedge fund's stated investment strategy and wasn't disclosed to investors, who received account statements falsely portraying that their investment was performing as well or even better than before. Weston Capital's former general counsel Keith Wellner assisted the activities.
The SEC further alleges that out of the transferred investor proceeds, Hallac, Wellner, and Hallac's son collectively received $750,000 in payments from Swartz IP. Weston Capital and Hallac also wrongfully used $3.5 million to pay down a portion of a loan from another fund managed by the firm.
The SEC alleges that Weston Capital and Hallac violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The complaint further alleges that Wellner aided and abetted Weston Capital and Hallac's violations of Sections 10(b) of the Exchange Act and Rules 10b-5(a) and (c) thereunder, and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8(a)(2) thereunder. Without admitting or denying the allegations, Weston Capital, Hallac, and Wellner consented to the entry of a judgment enjoining them from future violations of these provisions, and Wellner agreed to pay $120,000 in disgorgement. The court will determine monetary sanctions for Weston Capital and Hallac at a later date. Jeffrey Hallac, without admitting or denying the allegations, agreed to pay $120,000 in disgorgement.