U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19449 / October 31, 2005
SECURITIES AND EXCHANGE COMMISSION v. NORTHSHORE ASSET MANAGEMENT, ET AL., Civil Action No. CV 05-2192(RO) (S.D.N.Y.)
SEC ADDS TWO DEFENDANTS, FRANCIS J. SALDUTTI AND DOUGLAS BALLEW, TO PREVIOUSLY-FILED HEDGE FUND FRAUD CASE
The Securities and Exchange Commission announced today the filing of its First Amended Complaint in SEC v. Northshore Asset Maganagement, et al., CV 05-2192 (RO) (S.D.N.Y.). The First Amended Complaint adds as defendants Francis J. Saldutti ("Saldutti") and Douglas Ballew ("Ballew") to the Commission's previously-filed claims of fraud at two hedge funds, Ardent Research Partners, L.P. ("Ardent Domestic") and Ardent Research Partners, Ltd. ("Ardent Offshore") (collectively, "the Ardent Funds"). The Commission's previously-named defendants are Northshore Asset Management, LLC ("Northshore"), Saldutti Capital Management, L.P. ("SCM"), Kevin Kelley ("Kelley"), Robert Wildeman ("Wildeman"), Glenn Sherman ("Sherman"), and the Ardent Funds.
On February 16, 2005, the Commission filed SEC v. Northshore, et al., 05 CV 2192 (RO) (S.D.N.Y.), alleging that, in April 2003, defendant Northshore and its three largest shareholders, defendants Kelley, Sherman, and Wildeman, obtained control over the Ardent Funds and fraudulently proceeded to divert tens of millions of dollars of the funds' cash assets to those defendants' own personal use (including purported personal loans and self-dealing investments). Consequently, the Ardent Funds became illiquid and were unable to meet investor redemption requests. The First Amended Complaint adds securities fraud claims against Saldutti, the Ardent Funds' founder and investment adviser, and Ballew, Northshore's former CFO.
The First Amended Complaint alleges that Saldutti made material misrepresentations and omissions to Ardent Funds investors regarding both Northshore's relationship to the Ardent Funds and Saldutti's transfers of tens of millions of dollars of Ardent Funds cash to Northshore and Northshore-related entities. The First Amended Complaint further alleges that Northshore CFO Ballew participated in the fraudulent scheme concocted by the previously-named defendants. In addition, the First Amended Complaint alleges a new offering fraud claim against Sherman, one of the originally-named defendants.
The First Amended Complaint charges all defendants with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In the alternative, the First Amended Complaint charges Kelley, Wildeman, Sherman, and Ballew with aiding and abetting Northshore and SCM's violations of those provisions; and Kelley, Wildeman, and Sherman with control person violations of those provisions. The First Amended Complaint further charges that Northshore and SCM, aided and abetted by Kelley, Wildeman, Sherman, and Ballew, violated Sections 206(1) and 206(2) of the Investment Advisers Act ("Advisers Act"). The First Amended Complaint also charges that Northshore, SCM, and Saldutti violated Sections 206(1) and 206(2) of the Advisers Act, or, in the alternative, that Saldutti aided and abetted Northshore and SCM's violations of those provisions. Finally, the First Amended Complaint charges Sherman and Saldutti with violations of Section 17(a) of the Securities Act of 1933.
On February 25, 2005 and March 10, 2005, the Court granted the Commission's motion for a preliminary injunction enjoining all previously-named defendants from violating the federal securities laws, freezing their assets (subject to certain limited exceptions), and appointing a receiver for defendants Northshore, SCM, and the Ardent Funds.
The Commission expresses its appreciation to the United States Attorney's Office for the Southern District of New York for its assistance in the investigation of this matter.