SEC Hits Ponzi Scheme-Smacked Fund Of Funds For Fraud

Nov 11 2011 | 12:05pm ET

The Securities and Exchange Commission has sued a New York hedge fund manager, accusing him of misrepresenting "various information concerning the funds' investmentperformance, longevity, assets, and the credentials and experience of [his] management team."

According to the SEC's complaint against Chetan Kapur and his ThinkStrategy Capital Management, Kapur misled investors about both his experience with hedge funds and ThinkStrategy's operations. The SEC suit follows two lawsuits against Kapur and the firm filed by disgruntled investors, including a former World Series of Poker winner.

Kapur lied both about ThinkStrategy's performance—claiming, in 2008, returns of 22.6% when in fact it had lost 77.9%—and his own background, telling clients that he had 15 years of experience when he was just 29, the SEC said.

"From the firm's inception, ThinkStrategy and Kapur engaged in a pattern of deceptive marketing designed to bolster the purported size, credentials and experience of ThinkStrategy as a hedge fund manager," the SEC complaint alleges. "These misrepresentations gave the appearance that ThinkStrategy was a sophisticated operation with a well-credentialed team, when in fact the firm was a one-person operation with few supporting employees."

Worse still, the once-$520 million firm's failure to adhere to its own claimed due diligence standards led it to invest in not one, but three Ponzi schemes: Bayou Group, Arthur Nadel and Grant Grieve.

"Had ThinkStrategy adhered to its stated due diligence standards, and required audited financial statements certified by bona fide accounting firms, the multi-strategy fund may not have invested detrimentally in those funds," the SEC wrote.

Without admitting or denying the allegations in the complaint, ThinkStrategy and Kapur have consented to the entry of a judgment, which imposes a yet-to-be-determined civil monetary penalty, and orders them to pay disgorgement and prejudgment interest in amounts to be determined by the court. In addition, Kapur has agreed to an order barring him from association with any investment adviser, broker, dealer, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization. The settlement is subject to SEC approval.

In an email to FINalternatives, Kapur wrote, “All investors in the ThinkStrategy Capital Fund were fully redeemed having received the reported returns…ThinkStrategy has settled the current matter with the regulators, and the reason ThinkStrategy settled was because the firm had effectively wound down over a year ago.”


In Depth

Delayed Flash Crash Arrest Highlights Difficulties Detecting Fraud

Apr 23 2015 | 7:19am ET

The five years it took regulators to bring high-profile charges against a UK trader...

Lifestyle

Puerto Rico Woos The Rich But So Far Gains Little

Apr 17 2015 | 2:45am ET

Hedge fund manager Rob Rill grins. He has just had word that U.S. financial regulators...

Guest Contributor

Opportunities Ahead: Asian Fixed Income and Currency Markets

Apr 24 2015 | 6:18am ET

For hedge funds focusing on Asia, the policy uncertainty, unclear interest rate...

 

Editor's Note