U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23440 / December 28, 2015
Securities and Exchange Commission v. New Stream Capital, LLC, et al, Civil Action No. 3:13cv264 (JCH)(D. Conn.)
Former Connecticut Hedge Fund Executives Settle SEC Action
The Honorable Janet C. Hall, Chief Judge of the United States District Court for the District of Connecticut, has entered final consent judgments against defendants David A. Bryson (“Bryson”), Bart C. Gutekunst (“Gutekunst”) and Richard Pereira (“Pereira”) in the Commission’s action alleging that they engaged in fraud while running hedge funds affiliated with New Stream Capital, LLC (“New Stream”), formerly an unregistered investment adviser based in Ridgefield, Connecticut.
The Commission’s complaint alleges that the defendants, through New Stream and affiliated entities, ran a $750-plus million hedge fund complex focused on illiquid investments in asset-based lending. Bryson and Gutekunst were owners and senior managers of New Stream, and Pereira was New Stream’s chief financial officer. The complaint alleges that beginning in March 2008, Bryson, Gutekunst and Pereira engaged in a fraudulent scheme to make changes to the New Stream funds’ capital structure without disclosing those changes to new investors in the funds. As alleged in the complaint, the undisclosed changes to the capital structure subordinated the position of, among others, new fund investors but were advantageous to other existing fund investors, including the funds’ largest investor, which had threatened to redeem its investment. The complaint further alleges that following the New Stream funds’ collapse in the wake of the financial crisis, the investors’ whose position in the funds’ capital structure had been secretly subordinated were left with significantly lower recoveries than the funds’ other investors.
The final judgments, to which Bryson, Gutekunst and Pereira consented, permanently enjoin Bryson and Gutekunst from violating 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, Rule 10b-5 thereunder, Section 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-8 thereunder. Bryson and Gutekunst were also enjoined from from violating Sections 206(1) and 206(2) of the Advisers Act. The judgments also require Bryson, Gutekunst and Pereira to pay disgorgement and prejudgment interest in the amounts of $6,347,252.55, $6,258,445.49 and $454,471.50, respectively, and provide that the defendants’ liability for such amounts is deemed satisfied by the $57 million restitution order entered jointly and severally against them by the same court in the parallel criminal action brought by the United States Attorney’s Office for the District of Connecticut (“USAO”). The judgments forgo the imposition of civil monetary penalties in view of the prison sentences imposed on the defendants pursuant to their guilty pleas in the parallel criminal action.
In addition, the Commission issued administrative orders, pursuant to Section 203(f) of the Advisers Act, barring Bryson, Gutekunst and Pereira from association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent, and suspending Pereira, a CPA, from appearing or practicing before the Commission pursuant to Rule 102(e) of the Commission’s Rules of Practice. Bryson, Gutekunst and Pereira also consented to the issuance of the Commission orders, which were based on the permanent injunctions entered against them in the federal court action and their guilty pleas in the parallel criminal proceedings.
A final consent judgment was previously entered against defendant, Tara Bryson, who was the director of marketing and client relations at New Stream during the time of the fraud alleged in the complaint, as well a Commission order, on consent, barring her from association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent.
With the Commission’s consent, the court dismissed the claims against defendants New Stream and New Stream Capital (Cayman), Ltd., formerly an affiliated off-shore advisory entity, both of which are now defunct and whose affiliated funds are the subject of bankruptcy proceedings in which assets are being liquidated for distribution to fund investors and other fund creditors pursuant to court orders issued in the bankruptcy proceedings.
The Commission acknowledges the assistance and cooperation of the USAO, the Federal Bureau of Investigation and the United States Department of Labor in this matter.