U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18845 / August 24, 2004
Securities and Exchange Commission v. Scott B. Kaye, et al., Civil Action No. 04:1275MLB, United States District Court for the District of Kansas (Wichita Division).
SEC FILES EMERGENCY CIVIL ACTION AND OBTAINS ASSET FREEZE AGAINST SCOTT B. KAYE AND TRUEHEDGE CAPITAL
Suit Alleges that Wichita-Based Hedge Fund Manager Committed Securities Fraud by Stealing Investor Funds
On August 23, 2004, the Commission filed an emergency action in United States district court in Wichita, Kansas against a Wichita-based hedge fund and its manager, alleging that the hedge fund manager fraudulently promoted the hedge fund by lying to investors and then spent their money on his personal expenses, including the construction of his new private residence in Wichita. The Commission simultaneously filed in the civil action, and the court granted, a motion seeking an asset freeze and other emergency relief against the defendants, in order to prevent the dissipation or concealment of assets that the Commission claims should be paid as civil money penalties and disgorgement of illegal profits.
In its complaint, the Commission alleged that Scott B. Kaye, of Wichita, Kansas, is the sole managing member of TrueHedge Advisors, L.L.C. ("TrueHedge Advisors"), the unregistered investment adviser of TrueHedge Capital Partners, L.P. ("TrueHedge Capital"), a hedge fund based in Wichita. From June 2002 through February 2003, according to the Commission's complaint, Kaye and TrueHedge Advisors raised $1.9 million for TrueHedge Capital by selling limited partnership interests to 18 investors. The Commission further alleges that, whereas the private placement memorandum claimed TrueHedge Advisors and Kaye would use the funds to operate a hedge fund, investing in stocks and options, Kaye misappropriated more than a third of the offering proceeds.
In its action, the Commission charged Kaye, TrueHedge Advisors, and TrueHedge Capital with 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, as well as Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The Commission is seeking permanent injunctions, an order requiring the defendants to disgorge any illicit profits from their fraudulent scheme, plus prejudgment interest, and civil money penalties. The Commission also filed a motion on August 23, seeking, against each of the defendants, ex parte emergency relief, including an accounting, an asset freeze, and an order prohibiting the destruction or alteration of documents and expediting discovery. The court granted all relief sought by the Commission in its motion.
The Commission gratefully acknowledges the assistance and cooperation of the Kansas Securities Commission.