SEC Obtains Consent Judgment Against Investment Advisor and Principal
Litigation Release No. 24285 / September 21, 2018
Securities and Exchange Commission v. Hope Advisors, LLC, et al.,, No. 1:16-cv-1752-LMM (N.D.Ga.) (filed May 31, 2016)
On September 13, 2018, the United States District Court for the Northern District of Georgia entered a consent judgment against Nashville, Tennessee based Hope Advisors, LLC ("Hope") and its principal, Karen Bruton, in connection with their scheme to collect extra monthly fees from a pair of hedge funds they managed.
In its complaint, filed on May 31, 2016, the SEC alleged that Hope and Bruton managed two private hedge funds in which their only compensation was an incentive fee, calculated as a share of the profits earned in the funds' accounts each month. The complaint alleged that Hope and Bruton engaged in a continuous pattern of trading to inflate their incentive fee by structuring trading so that a profit would be realized at the end of the month and guaranteeing that losses would not be realized until the following month. Many of these trades could not reasonably have been expected to generate a profit for the funds, and thus served solely to generate advisory fees for Hope to the detriment of the funds' investors. The scheme allegedly enabled Hope to avoid realizing more than $50 million in losses in the hedge funds while earning millions of dollars in fees to which it was not entitled. According to the complaint, if Hope and Bruton had not engaged in the scheme, they would have received almost no incentive fees between at least October 2014 and June 2016.
The court entered the consent judgment against Hope and Bruton ordering them to pay disgorgement of $1,237,235 and a civil penalty of $250,000. The judgment also enjoins them from violations of the antifraud provisions of Sections 206(1), (2) and (4) of the Investment Advisers Act and Rule 206(4)-8 thereunder.
The Commission is represented by Joshua Mayes, Robert Gordon and M. Graham Loomis of the Atlanta Regional Office in this litigation.
For more information see Litigation Release 23551.