U.S. Securities and Exchange Commission
Litigation Release No. 21886 / March 15, 2011
Securities and Exchange Commission v. Juno Mother Earth Asset Management, LLC, Eugenio Verzili and Arturo Allan Rodriguez Lopez a/k/a Arturo Rodriguez, Defendants, Civ. No. 11-CV 1778 (S.D.N.Y.) (TPG)
SEC CHARGES HEDGE FUND MANAGERS WITH FRAUD
On March 15, 2011, the Securities and Exchange Commission charged a hedge fund investment advisory firm and its two founders with orchestrating a multi-faceted scheme to defraud clients and failing to comply with fiduciary obligations.
The SEC alleges that Eugenio Verzili and Arturo Rodriguez through their firm Juno Mother Earth Asset Management LLC misappropriated client assets, inflated assets under management, and filed false information with the SEC. Juno, Verzili and Rodriguez looted approximately $1.8 million of assets from a hedge fund they manage, misusing it to pay Juno's operating costs related to payroll, rent, travel, meals, and entertainment. They issued promissory notes to conceal a substantial portion of their misappropriation. Juno, Verzili and Rodriguez also misrepresented the amount of capital that some Juno partners had invested in one of its funds, claiming they had invested millions of dollars when they actually had invested nothing in the funds.
According to the SEC's complaint filed in the U.S. District Court for the Southern District of New York, Juno sold securities in client brokerage and commodity accounts and directed 41 separate transfers of cash to Juno's bank account, claiming falsely that the transfers were reimbursements for expenses Juno had incurred on behalf of the client fund. Verzili and Rodriguez later fabricated and issued nine promissory notes to make it appear that the client fund had invested the money in Juno. But they concealed the so-called investment from the independent directors of the client fund.
The SEC's complaint further alleges that Juno, Verzili and Rodriguez marketed investments in the Juno-advised fund and failed to disclose Juno's precarious financial condition to investors. They also failed to disclose that Juno owed a client fund a minimum of $1.2 million, which represented the proceeds of the promissory notes. While offering and selling securities in the client fund, Juno repeatedly inflated and misrepresented the amount of assets that Juno managed and claimed at one point that Juno had as much as $200 million under management. Verzili also represented falsely to investors that Juno's partners had up to $3 million of their own capital invested in a client fund. Juno's partners had never actually invested any of their own money.
The SEC alleges that Juno filed false Forms ADV with the SEC in order to avoid deregistration with the Commission, claiming in those filings that Juno managed $40 million more than it actually did. Verzili and Rodriguez also caused Juno to provide a number of false filings to the SEC that failed to disclose that Juno had engaged in principal transactions with its client and had custody of client assets.
The SEC's complaint alleges violations by Juno, Verzili and Rodriguez of 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 203A, 206(1), 206(2), 206(4) and 207 of the Investment Advisers Act of 1940 and Rules 206(4)-2, 206(4)-4 and 206(4)-8 thereunder. The SEC seeks permanent injunctions, joint and several disgorgement of ill-gotten gains plus prejudgment interest, and monetary penalties.
The SEC acknowledges the assistance of the Cayman Islands Monetary Authority and the Financial Market Authority Liechtenstein.