Litigation Release No. 17831 / November 7, 2002
SEC v. Beacon Hill Asset Management LLC, Beacon Hill Master, Ltd., Bristol Fund, Ltd., Safe Harbor Fund L.P., Safe Harbor Asset Management, LLC, Milestone Plus Partners L.P. and Milestone Global Advisors, L.P., CIVIL ACTION NO. 02 CV 8855 (LAK), (S.D.N.Y.)
SEC Charges Hedge Fund Manager Beacon Hill Asset Management, LLC
Beacon Hill and Funds Consent to Court-Ordered Controls
On November 7, 2002, the Securities and Exchange Commission charged Beacon Hill Asset Management LLC (Beacon Hill), a hedge fund manager located in Summit, New Jersey, with a violation of the anti-fraud provisions of the Investment Advisers Act. The Commission's complaint, filed in the U.S. District Court for the Southern District of New York, alleges that at least during July through September 2002, Beacon Hill reported net asset values and corresponding returns to fund investors that it knew or should have known were materially overstated. In addition to a permanent injunction against future violations, disgorgement and civil penalties, the Commission is seeking substantial preliminary relief, that Beacon Hill, its managed hedge funds (Beacon Hill Master, Ltd., Bristol Fund, Ltd., Safe Harbor Fund L.P., and Milestone Plus Partners L.P.), and controlling entities of the hedge funds (Safe Harbor Asset Management, LLC and Milestone Global Advisors, L.P.) have agreed to. Under the terms of a stipulation to be filed with the court, and subject to the approval of the Court:
- Beacon Hill will be preliminarily enjoined from violating Section 206(2) of the Investment Advisers Act of 1940;
- Beacon Hill and the hedge funds will report to the court within 10 days of entry of the order that Beacon Hill is no longer managing the funds and that a new investment manager is in place;
- Court approval will be required for redemptions, withdrawals, or distributions from the funds, as well as for extraordinary payments;
- The funds will require the new investment manager to file periodic reports with the court, the SEC, and investors; and
- Beacon Hill will be required to preserve all relevant documents and to cooperate fully to enable the new investment manager to perform its duties.
The Commission's Complaint alleges that Beacon Hill managed three "feeder" hedge funds - Bristol, Safe Harbor, and Milestone - as well as a "master" fund (Beacon Hill Master) through which the feeder funds conducted trading. The funds principally invested in the mortgage-backed securities markets on a leveraged basis. The Complaint alleges that, for at least the periods ending July 31, August 31, and September 30, 2002, Beacon Hill reported net asset values and corresponding returns to fund investors that it knew or should have known were materially overstated. Among other things, on October 8, Beacon Hill reported to investors that the Safe Harbor and Bristol funds had suffered losses estimated at 25% during the month of September. On October 17, however, Beacon Hill reported to investors that losses were approximately 54% - more than double the amount reported on October 8 - including losses that had not been reported during prior periods.
The Commission's Complaint alleges that Beacon Hill violated Section 206(2) of the Investment Advisers Act of 1940, which prohibits transactions, practices, and courses of business which operate as a fraud or deceit upon investment advisory clients and prospective clients. The Complaint seeks a permanent injunction, disgorgement, and civil money penalties. The Complaint names the hedge funds and their controlling entities as "relief" defendants solely in order to effectuate the controls and reporting requirements described above.
The Commission's investigation is continuing.
