U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 22073 / August 29, 2011
Securities and Exchange Commission v. Stanley J. Kowalewski, et al, Case No. 1:11-cv-00056-TCB (N.D. Ga.)
On August 29, 2011, the Securities and Exchange Commission filed an emergency application for an Order to Show Cause why Defendant Stanley J. Kowalewski ("Kowalewski") should not be held in civil contempt for failing to comply with the Court's Orders freezing his assets. The Court has ordered a hearing on the Commission's application for August 31, 2011.
The emergency application arises out of a complaint filed earlier this year by the Commission to stop an alleged offering and investment advisory fraud being perpetrated by Kowalewski against investors, primarily consisting of pension funds, school endowments, hospitals and foundations. See LR-21800, January 7, 2011. According to the Commission, Kowalewski misappropriated, misused and misspent at least $12.5 million of investor money entrusted to his management by, among other things, having his hedge fund: (1) buy his personal home for $2.8 million, (2) purchase a vacation beach home for his use for $3.9 million, and (3) pay his investment management company over $10 million in unfounded fees, of which he paid himself $7.6 million in "advances" and "salary draws". To further conceal his scheme, the Commission alleges that Kowalewski sent fraudulent monthly account statements to the investors that grossly inflated the actual asset values and returns. Following the filing of the Commission's complaint, the U.S. District Court entered and subsequently extended an asset freeze over Kowalewski's assets, including over the house that he had previously caused his hedge fund to "purchase" from him for $2.8 million.
As set forth in its emergency application, Kowalewski violated and is violating the Court's asset freeze by removing and selling from that same house: kitchen and wall-mounted cabinets, light fixtures, doors, and other structural elements, with an estimated value of at least $176,000, while substantially damaging the house in the process. By its emergency application, the Commission seeks to stop the on-going harm, require Kowalewski to account for and return to the Receiver the items taken from the house, and pay the Receiver for the damage he has caused to it.
The Commission previously filed a motion with the Court for disgorgement and penalties against Kowalewski seeking disgorgement of $8.4 million, plus prejudgment interest, and penalties in an amount to be determined by the Court, but which could be as high as an additional $67 million. That motion is currently pending.