Sunday, 1 February 2015
Last updated 1 day ago
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.
Jan 23 2015 | 1:00pm ET
In our new section, FINtech Focus, we will profile one of these firms each week. While fintech is a broad category, we will be focusing on firms that specifically cater to the alternative investment industry. Read more…