Ex-Employee: Liquidating Hedge Fund Hid Probe For Months

Dec 8 2014 | 10:53am ET

The sudden closure of hedge fund Vertical Capital last week may not have been so sudden, after all.

The firm announced last week that it would shut its $400 million hedge-fund business after its founder struck a deal with the Securities and Exchange Commission on insider-trading charges. According to the SEC, Brett Graham and his brokerage fund, VCAP Securities, made improper bids on a group of collateralized debt obligations it owned while “in the possession of confidential information.” Vertical Capital was not cited in the complaint.

While last week’s news may have taken some investors by surprise, it was apparently months in the making. According to the firm’s former marketing and investor relations chief, a prospective investor discovered that the firm was under SEC investigation—a fact it had not disclosed either to investors, or to the IR executive, Miriam Freier, hired a year earlier.

Freier, who is now suing the firm, told The New York Times that she was warned not to disclose the investigation to anyone while it completed the settlement negotiations. Last month, she sought to resign, but was asked to stay on until February to help advise clients about the wind-down. But she was fired last week after she rejected Vertical’s separation agreement.

“Investors have a right to know when a firm is under an SEC investigation that could result in the wind-down of a fund,” she said. “They also have the right to know if a key person making investment decisions on their portfolios could be at risk of being removed from the industry as a result of a settlement with the SEC.” Graham agreed to a temporary ban from the securities industry as part of the settlement, which also required VCAP to close.

Vertical has denied any wrongdoing. Spokesman Jonathan Gasthalter told the Times that the firm “informed investors the day after receiving the initial draft of a proposed settlement from the SEC.” He called Freier a “disgruntled, now former employee” who is trying “to extort the company.”

Freier’s lawyer, Jonathan Sack, told the newspaper, “While I’m always surprised to see the ruthlessness of people in the workplace, in this instance, the acts of desperation and greed at the expense of my client’s career and reputation reach new lows.”

In Depth

Q&A: Portfolio Advisors' Brian Murphy On The Advantages of A Private Markets Platform

Jan 2 2018 | 11:05am ET

Most private markets firms reference their platforms as a source of competitive...


CFA Institute To Add Computer Science To Exam Curriculum

May 24 2017 | 9:25pm ET

Starting in 2019, financial industry executives sitting for the coveted Chartered...

Guest Contributor

Steinbrugge: The Top Hedge Fund Industry Trends for 2018

Jan 2 2018 | 12:22pm ET

Each year, Don Steinbrugge’s Agecroft Partners compiles the insights gained...


FINalternatives Trending

From the current issue of