U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18816 / August 2, 2004
Securities and Exchange Commission v. Anthony P. Postiglione, Jr., et al., Civil Action No. 04-CV-3604 (E.D. Pa.)
COMMISSION FILES EMERGENCY ACTION TO STOP HEDGE FUND FRAUD
The Securities and Exchange Commission ("Commission") announced that on July 30, 2004, it filed an emergency civil action in the United States District Court for the Eastern District of Pennsylvania against Anthony P. Postiglione, Jr. ("Postiglione"), of Malvern, PA and William J. Lennon ("Lennon"), of Media, PA, sole shareholders of defendant Fountainhead Asset Management, LLC ("FAM"), the general partner of, and unregistered investment adviser to, a hedge fund, defendant Fountainhead Fund, LP ("the Fund"), located in Wayne, PA. Pursuant to the Commission's motion, the Honorable Legrome D. Davis issued an order temporarily enjoining the defendants from violating the antifraud provisions of the Securities Act of 1933, Securities Exchange Act of 1934, and the Investment Advisers Act of 1940; freezing the defendants' assets; appointing a receiver; granting expedited discovery; and scheduling a hearing on the Commission's motion for a preliminary injunction for August 5, 2004.
The Commission's Complaint alleges that, from November 2001 through the present, Postiglione and Lennon have raised approximately $5 million for the Fund from at least 18 private investors. Through a series of fraudulent acts, defendants Postiglione and Lennon, acting through FAM, have obtained assets fraudulently, have lulled investors into keeping their assets in the Fund, and have misused investor funds. The Complaint alleges that, from the inception of the Fund through the present, Postiglione and Lennon have sent false quarterly statements and newsletters to investors, consistently overstating the Fund's value and performance. In addition, they have overstated the amount of Postiglione's personal investment in the Fund and the Fund's performance in order to lure new investments. Further, in violation of their fiduciary duties to their clients, Postiglione and Lennon excessively traded several Fund securities accounts for the sole purpose of generating soft dollar credits, which they then withdrew as cash and used for, among other things, their own personal living expenses. The Complaint alleges that, during the course of this fraud, Postiglione and Lennon also misappropriated several hundred thousand dollars of Fund assets for their personal use. As of the date of filing, investor funds in the Fund totaled approximately $1.7 million.
The Complaint alleges that defendants Postiglione, Lennon, FAM, and the Fund have violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder, and that Postiglione, Lennon, and FAM have violated Sections 206(1) and 206(2) of the Advisers Act. The Complaint seeks permanent injunctions, disgorgement together with prejudgment interest, and civil penalties.
