SEC Brings First Failure To Supervise Action Against Principal of an Unregistered Investment Adviser to a Hedge Fund; Also Charges Hedge Fund Director of Investments With Fraud
FOR IMMEDIATE RELEASE
Also Charges Hedge Fund Director of Investments With Fraud
Washington, D.C., Dec. 15, 2003 -- The Securities and Exchange Commission today announced the first "failure to supervise" enforcement action against the principal of an unregistered investment adviser to a hedge fund. Previous failure to supervise actions against investment advisers had been brought only against registered advisers. In the same action, the Commission charged the adviser's director of investments with fraud.
The Commission charged Wilfred Meckel, principal, and Robert T. Littell, director of investments, of Marque Millennium Group, Inc. (MMG), an unregistered investment adviser to three hedge funds called Marque Partners I (MPI), Marque Partners II and Marque Fund II Limited. The Commission charged Littell with defrauding investors in the hedge funds and Meckel with failing reasonably to supervise Littell with a view to preventing violations of the federal securities laws while Littell was subject to his supervision. Littell and Meckel each settled the actions without admitting or denying the Commission's findings.
Stephen M. Cutler, Director of the SEC Division of Enforcement, said "The Commission will use every available means to expose and to sanction securities fraud, including at hedge funds. To that end, the Commission will hold supervisors responsible if they do not take reasonable care to ensure that hedge fund employees act in the best interests of investors."
"Whether registered or unregistered, employees of investment advisers and the hedge funds they advise can and will be subject to enforcement action if they fail to act appropriately to protect investors," said Mark K. Schonfeld, Associate Director of the Commission's Northeast Regional Office. He added, "Reliance on what a hedge fund employee says, without independent verification, is not good supervision."
The Commission's administrative order makes the following findings. From December 1998 through March 2000, MMG, through Littell, defrauded hedge fund investors and potential investors by: (1) communicating materially inaccurate performance information; (2) misrepresenting the hedge funds' management structure, retention of an accountant and auditor, and risk management techniques; and (3) improperly redeeming the full amount of investments by two large investors at a time when the hedge funds had incurred substantial undisclosed losses. Littell also concealed and attempted to conceal the hedge funds' losses from investors and from Meckel.
The Commission's order also finds that Meckel failed to take reasonable supervisory actions, which could include maintaining accurate records of investments into and distributions from the hedge funds, review of daily trading activity, valuation of the hedge funds' positions, and separation of the hedge funds' trading and back office functions. Instead, Meckel relied on Littell's reporting and did not independently verify the performance information and other representations made by Littell. This delayed Meckel's discovery of Littell's misconduct and enabled Littell to continue his fraudulent activities.
The Commission barred Littell from association with any investment adviser and ordered him to cease and desist from 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, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940, and ordered him to pay a civil money penalty of $15,000. The Commission suspended Meckel from association in any supervisory capacity with any investment adviser for a period of six months and censured him. In determining appropriate sanctions, the Commission considered a financial statement submitted by Littell as well as remedial acts (including Meckel's payment of approximately $600,000 to reimburse Hedge Fund investors for losses) promptly undertaken by Meckel and the cooperation he afforded the Commission staff.
Mark K. SchonfeldSee Also: Administrative Proceeding Rel. No. IA-2203
Caren Nelson Pennington