U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21528 / May 21, 2010
SEC v. Lydia Capital, LLC et al., U.S. District Court for the District of Massachusetts, 07-CV-10712-RGS
U.S. District Court Enters Final Judgment Against Massachusetts Investment Adviser and U.S. Court of Appeals Affirms Default Judgment Against Hedge Fund Manager in Fraud Scheme
The Securities and Exchange Commission announced today that the U.S. District Court for the District of Massachusetts entered a Final Judgment by consent on May 18, 2010 in a previously-filed enforcement action against defendant Lydia Capital, LLC, an investment adviser based in Boston, Massachusetts. The judgment was entered in connection with a civil injunctive action filed in April 2007 by the Commission against Lydia Capital and its two principals, Glenn Manterfield and Evan Andersen. The Final Judgment enjoined Lydia Capital from engaging in future violations of the antifraud provisions of the federal securities laws.
The Commission also announced that on May 6, 2010, the United States Court of Appeals for the First Circuit rejected an appeal by Manterfield, a citizen of the United Kingdom, seeking to overturn the District Court’s Default Judgment entered against him on April 8, 2009. In its decision, the First Circuit held that the District Court did not abuse its discretion in entering a Default Judgment against Manterfield. The Judgment entered against Manterfield permanently enjoined him 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. The Judgment further holds Manterfield liable for $2,350,000 million in disgorgement of ill-gotten gains, plus prejudgment interest of $425,998, and a civil penalty in the amount of $130,000.
The Commission originally filed its action against Lydia Capital, Manterfield and Andersen on April 12, 2007 in the U.S. District Court in Massachusetts and filed an Amended Complaint on May 1, 2007. The Amended Complaint alleged that from June 2006 through April 2007, Manterfield and Andersen, acting through Lydia Capital, engaged in a scheme to defraud more than 60 investors, who invested approximately $34 million in Lydia Capital Alternative Investment Fund LP, a hedge fund managed by Lydia Capital. The Amended Complaint alleged that defendants told investors that they intended to use the hedge fund’s assets to acquire a portfolio of life insurance policies in the life settlement market. According to the Amended Complaint, Manterfield, Andersen, and Lydia made a series of material misrepresentations and omissions, including: (1) materially overstating, and in some instances completely fabricating the hedge fund’s performance; (2) inventing business partners, offices, and investors in an attempt to legitimatize the firm and concealing the truth as to why key vendors and banks ceased relationships with the defendants; (3) lying about Manterfield’s significant criminal history, and failing to disclose a February 2007 criminal asset freeze against him in England; (4) lying about how the hedge fund planned to address certain material risks and failing to disclose others; and (5) misstating the nature of the hedge fund’s assets and its investment process. In addition, the Amended Complaint alleged that Manterfield and Andersen took millions of dollars of investors’ funds by withdrawing investor monies to which they were not entitled.
On April 12, 2007, the U.S. District Court issued a temporary restraining order that, among other things, froze the three defendants’ assets. On May 3, 2007, the Court issued a consented-to preliminary injunction and ordered a continuation of an asset freeze of the defendants’ assets. On June 1, 2007, the Court appointed a Receiver for Lydia Capital. On September 16, 2008, the Court entered a Final judgment by consent against Andersen.
Without admitting or denying the SEC’s allegations, Lydia Capital consented to the entry of a the judgment permanently enjoining it 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. The Final Judgment did not impose disgorgement or a civil penalty because Lydia Capital’s remaining assets are being managed by a court-ordered receiver, who is expected to propose a plan to distribute any remaining assets to the fund’s underlying investors.
In separate administrative proceedings to be instituted, Lydia Capital has also consented to the entry of an order revoking its registration as an investment adviser.
The Commission acknowledges the assistance of the Financial Services Authority of the United Kingdom and the Securities Division of the Secretary of State of the Commonwealth of Massachusetts, which also filed an action against the parties on April 13, 2007.
For more information, please see Litigation Release Nos. 20102 (May 3, 2007), 20585 (May 19, 2008), 20723 (September 17, 2008), 20872 (January 28, 2009) and 20993 (April 8, 2009).