SEC Charges North Carolina Hedge Fund Manager With Fraud

Jan 7 2011 | 12:12pm ET

Federal regulators have charged a Greensboro, N.C.-based investment adviser firm and its owner with defrauding investors in two hedge funds by secretly diverting millions of dollars to enrich themselves.

The Securities and Exchange Commission obtained an emergency court order late yesterday freezing the assets of SJK Investment Management and its CEO Stanley Kowalewski, alleging that they raised more than $65 million since summer 2009 through marketing two hedge funds to various investors including pension funds, school endowments, hospitals and non-profit foundations. But, unbeknownst to these investors, Kowalewski placed $16.5 million of their money in an undisclosed new fund that he created, and then misused the money for personal use. Some of the allegations are that he purchased a vacation home for approximately $3.9 million. He also sold his personal home to the fund for nearly $1 million more than the price he paid for it, and then continued to live in the house essentially rent-free.

"Kowalewski treated these funds like his own personal bank account and siphoned off millions of dollars that his clients entrusted to him," said William Hicks, associate regional director of enforcement in the SEC's Atlanta Regional Office. "He breached his responsibilities as an investment adviser in the worst manner possible."

According to the SEC's complaint filed yesterday in federal court in Atlanta, SJK and Kowalewski began diverting investor money in August 2009 — almost immediately after receiving the first investor proceeds — to pay their personal and business overhead expenses under the pretense that they were "start-up" expenses for the funds.

To perpetuate the scheme, Kowalewski and SJK sent fraudulent monthly account statements to investors showing substantial and positive — but illusory — investment returns.

In addition to running a fund management firm, Kowalewski is also a basketball coach at the Oak Ridge Military Academy.


In Depth

Q&A: Open Season For Closed-End Funds

Aug 29 2014 | 10:00am ET

When Maury Fertig and Bob Huffman, former Salomon Brothers coworkers, launched...

Lifestyle

Och Funds Women In Finance Initiative At U-M

Aug 28 2014 | 3:01pm ET

Och-Ziff Capital founder Daniel Och and his wife have made a "generous donation"...

Guest Contributor

Looking Ahead: What’s In Store For Managed Futures?

Aug 22 2014 | 12:52pm ET

The last five years were phenomenal for investors in equity indices. Will the next...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

July/August 2014 Cover

The time was right

Commodities/Futures magazine launched at the precipice of a revolution in the futures industry—really a revolution in the idea of risk management—that would move it from a small niche industry to ...

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.