U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 24014 / December 14, 2017
Securities and Exchange Commission v. Justin D. Meadlin and Hyaline Capital Management, LLC, No. 17-cv-02752 (S.D.N.Y. filed April 17, 2017)
Commission Obtains Judgments on Consent Against New York Investment Adviser and its Co-Founder, and Bars Co-Founder from Securities Industry
The Securities and Exchange Commission announced today that, on November 22, 2017, Judge William H. Pauley of the United States District Court for the Southern District of New York entered judgments on consent against Justin D. Meadlin and the firm he co-founded, Hyaline Capital Management, LLC (Hyaline). In its complaint, the SEC alleged that Meadlin and Hyaline used false and misleading information to induce prospective investors and clients to invest money with them. Without admitting or denying the allegations in the complaint, Meadlin and Hyaline consented to the entry of an Order enjoining them from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder, and, further, enjoining Hyaline from violating Advisers Act Rule 206(4)-1(a)(5) and Meadlin from aiding and abetting violations of Section 206(4) of the Advisers Act and Rule 206(4)-1(a)(5) thereunder. The Court also ordered Meadlin to disgorge $150,645.66 plus prejudgment interest thereon of $12,771.39, and pay a civil monetary penalty of $150,000. In addition, on December 13, 2017, the SEC entered an Order on consent barring Meadlin from the securities industry, with a right to reapply after five years.
The SEC filed on April 17, 2017 its complaint alleging, among other things, that Meadlin engaged in a scheme to induce clients, and prospective investors and clients, to invest funds through fraudulent misrepresentations and omissions of material fact. The complaint alleged that Meadlin disseminated dozens of emails to prospective investors and clients, in which he materially inflated Hyaline's assets under management. The complaint also alleged that Meadlin touted a fictitious quantitative fund in email solicitations to more than two dozen prospective investors and in subscription hedge fund databases. Meadlin claimed the fund had as much as $25 million in assets, and he published consistently positive historical performance returns for it dating back to 2009 that were purportedly from a "proprietary" algorithm that he acquired. According to the complaint, none of this was true: the fund did not exist, and never had, and Meadlin never acquired or created any "proprietary" algorithm. Nor had they achieved the touted historical returns. Based on his fraudulent misrepresentations and omissions, certain investors invested money with Meadlin and Hyaline.
The SEC's investigation was conducted by Stephen B. Holden and Dan Pines of the Asset Management Unit, and the litigation was led by Richard G. Primoff. The case was supervised by Panayiota K. Bougiamas of the Asset Management Unit.