AlphaBridge To Pay $5M To Settle SEC Pricing Allegations, Will Close

Jul 2 2015 | 4:18pm ET

AlphaBridge Capital Management and its two owners have settled SEC allegations that they fraudulently inflated the prices of securities in the portfolios they managed.

AlphaBridge, Thomas Kutzen and Michael Carino have agreed to pay a combined total of $5 million to settle the charges without admitting or denying them, according to a statement by the SEC. 

Kutzen founded AlphaBridge in 2001 and was its majority owner, while Carino was the Chief Compliance Officer and a minority owner. The hedge fund will return $4.03 million in disgorgement and $975,000 in civil penalties.

An SEC investigation found that AlphaBridge told investors and its auditor that it obtained independent price quotes from broker-dealers for certain unlisted, thinly-traded residential mortgage-backed securities it held in its portfolios. Instead, AlphaBridge gave internally-derived valuations to broker-dealer representatives to pass off as their own.  

The inflated valuation of these assets caused the funds to pay higher management and performance fees to AlphaBridge in 2011 and 2012, according to the SEC. 

“The integrity of the portfolio valuation process is critical to fund investors, especially when it involves illiquid securities,” said Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, in the statement. “AlphaBridge claimed to use market-grounded price quotes from brokers when in fact it relied on its own rosy view of market conditions to price its portfolio,” she added.

AlphaBridge also misled the funds’ auditor during two year-end audits, suggesting that Houston, TX broker Richard Evans had independently generated data to support AlphaBridge’s prices. Carino actually developed the data himself.

The fund’s valuation methodology was changed after 2012 at the request of the auditor, and in January 2014 the funds were written down from $138 million to $48 million. 

Evans, who agreed to cooperate with the SEC, was charged with aiding and abetting the AlphaBridge violations. He has also settled with the regulator for a fine of $15,000 and a one-year ban from the industry, without admitting any wrongdoing.

Greenwhich, CT-based AlphaBridge will close, according to the statement, winding down the company’s AlphaBridge Fixed Income Master Fund and two feeder funds.

Carino accepted a three-year ban from the industry as part of the settlement, while AlphaBridge and Kutzen received censures. 


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