U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19460 / November 9, 2005
Securities and Exchange Commission v. Mark R. Conway and Groundswell Partners LLC, Civil Action No. 05-12209-RWZ (D.Mass. filed November 4, 2005).
SEC OBTAINS TEMPORARY RESTRAINING ORDER AND ASSET FREEZE AGAINST MASSACHUSETTS HEDGE FUND MANAGER
The Securities and Exchange Commission announced today that on November 4, 2005, it sought and obtained an emergency asset freeze and temporary restraining order against hedge fund manager Mark R. Conway and his firm, Groundswell Partners LLC, of Waltham, Massachusetts. In its Complaint filed in U.S. District Court in Boston, the Commission alleges that Conway, also of Waltham, Massachusetts, defrauded his clients by not disclosing the millions of dollars in losses that Groundswell Capital LP (the "Fund) incurred, the actual amount of assets in the Fund and the trading strategy he was employing. In addition, the Complaint alleges that Conway altered documents to cover-up his misrepresentations.
According to the Complaint, in an October 26, 2005 consented-to tape-recorded conversation with a partner of Groundswell Partners, Conway admitted that he lost a large amount of money in the Fund and, in an effort to make up the loss, deviated from the Fund's original investment strategy without notifying investors. The Complaint also alleges that Conway admitted in the tape-recorded conversation that, in an effort to conceal the loss, he altered Fund-related documents, including financial statements, profit and loss spreadsheets and account statements sent to investors. The Complaint also alleges that Conway admitted in the tape-recorded conversation that the altered account statements falsely inflated the amount of assets in the investors' accounts. According to the Complaint, Conway admitted in the tape-recorded conversation that, although the altered Fund-related documents indicate that the Fund should have approximately $43 million in assets, the Fund's true value is currently only approximately $14 million. According to the Complaint, Conway also admitted in the tape-recorded conversation that he had, in the past, created a fictitious auditor and fictitious audit reports for the Fund.
In response to the Commission's request for emergency relief, U.S. District Court Judge Nathaniel M. Gorton, acting as the emergency judge, froze the assets of Conway and Groundswell Partners, as well as the assets in the Fund, which was named as a relief defendant. The Court also entered an order requiring, among other things, that the defendants provide a detailed accounting of their assets and of the transactions concerning the fraud described in the Complaint. The Court's order also temporarily restrains the defendants from violating certain antifraud provisions of the securities laws, specifically, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. A hearing was scheduled for November 9, 2005 at 9:30 a.m. before Judge Rya W. Zobel, who is assigned to handle this matter.
The Commission acknowledges the assistance of the United States Attorney's Offices for the District of Massachusetts and the Central District of California and the Boston and Los Angeles offices of the Federal Bureau of Investigation.