Conrad P. Seghers and James R. Dickey
U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19631 / March 30, 2006
Securities and Exchange Commission v. Conrad P. Seghers and James R. Dickey, Civil Action No. 3:04 CV 1320-K (N.D. Tex.)
SEC Obtains Jury Verdict Finding Conrad P. Seghers Liable for Hedge Fund Fraud
On March 1, 2006, following a three week trial in United States District Court for the Northern District of Texas, a jury found Conrad P. Seghers liable for violating the antifraud provisions of the federal securities laws.
On June 16, 2004, the Securities and Exchange Commission filed a complaint alleging hedge fund fraud perpetrated by Seghers, a resident of Garland, Texas, and James Dickey, a resident of Flower Mound, Texas. The Commission's complaint alleged that from June 2000 through September 2001, Seghers and Dickey fraudulently offered and sold securities in three Texas-based hedge funds, Integral Equity, LP, Integral Hedging, LP, and Integral Arbitrage, LP (collectively, the Funds). During this period, the Funds raised over $71.6 million from approximately 30 investors, including The Art Institute of Chicago.
The complaint alleged that Seghers controlled and made investment decisions for the Funds through Integral Investment Management, LP, and that Dickey marketed the Funds to investors. As alleged in the complaint, Seghers and Dickey fraudulently offered the Funds' securities by failing to disclose to investors the substantial losses the Funds incurred and that Seghers was overstating the Funds' assets. Seghers caused the Funds' assets to be overstated by amounts ranging from 13% to 84% per month.
The Commission also alleged that Seghers and Dickey misrepresented to investors that the Funds had prominent brokerage firms at various times as their "prime broker," when the Funds never had a prime broker. In a prime brokerage relationship, the prime broker is a broker-dealer that, among other things, clears and finances customer trades made at other brokerage firms at the customer's request.
The Commission charged Seghers and Dickey with violating the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933, and the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and also charged Seghers with violating the antifraud provisions of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 and Dickey with violating the broker-dealer registration provisions of Section 15(a) of the Exchange Act. The jury found Seghers liable for violating each of the above antifraud provisions. The jury also found that Seghers had met his burden of proof to establish an exemption from the registration provisions of Section 5.
Prior to trial, Dickey consented to entry of a permanent injunction, without admitting or denying the allegations in the complaint, as well as an order to pay disgorgement of $85,000 together with prejudgment interest of $18,952, with payment of all but $35,000 waived based upon Dickey's demonstrated financial inability to pay. Based on Dickey's financial condition, Dickey was not ordered to pay a civil penalty. On March 6, 2006, the Honorable Ed Kinkeade, United States District Judge, entered the final judgment against Dickey. Additionally, pursuant to Dickey's offer of settlement, on March 27, 2006, the Commission instituted an administrative proceeding against him, pursuant to which he was barred from association with any broker, dealer or investment adviser, with a right to reapply for association after five years. [In the Matter of James R. Dickey, Respondent, Administrative Proceeding File No. 2-12248].
Based on the jury's finding of liability, the Commission seeks a permanent injunction, disgorgement with prejudgment interest and a civil penalty against Seghers in the United States District Court action.
Previously, the Commission instituted and settled public administrative and cease-and-desist proceedings against an alleged third participant in the fraudulent scheme, Samer M. El Bizri and his company, Bizri Capital Partners, Inc. [In the Matter of Samer M. El Bizri and Bizri Capital Partners, Inc., Administrative Proceeding File No. 3-11521].
For further information, see Litigation Release No. 18749 (June 17, 2004).