SEC Eyes Stilwell Loans

Aug 18 2014 | 9:48am ET

The Securities and Exchange Commission is investigating an activist hedge-fund manager for allegedly failing to tell investors about a series of loans between his funds, and it would like to talk to him about it.

The SEC has asked a federal court in Manhattan to enforce its subpoena of Stilwell Value Partners founder Joseph Stilwell. The regulator said it has uncovered evidence that some Stilwell funds loaned others more than $9 million over a five-year period. Many of those loans, according to the SEC, were never documented or disclosed to clients.

Stilwell and his firm said they “vehemently disagree” with the SEC’s allegations and said that it cannot “credibly allege… any investor harm or that Mr. Stilwell personally profited from the conduct at issue.”

The SEC has sent Stilwell a Wells notice, indicating it plans an enforcement action. No such action has yet been authorized, the SEC said.

The agency’s latest subpoena came after it discovered 13 more loans dating back as far as 2013. In testimony last year, Stilwell told the SEC of seven loans but said he knew of no others.

Stilwell’s lawyers said that settlement talks have fallen apart and that the SEC’s subpoena has “no investigative purpose, but rather is a discovery tool for use in litigation.”

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