SEC Sues Pentagon For Defrauding Mutual Funds

Apr 4 2008 | 2:00am ET

Last week, Pentagon Capital Management announced it would close shop in expectation of a regulatory complaint. Yesterday, that complaint came.

The U.S. Securities and Exchange Commission filed suit against the London-based hedge fund, which manages £1.1 billion (US$2.2 billion), and its CEO for allegedly improper mutual fund trading practices.

According to the SEC, Pentagon defrauded U.S. mutual funds through a late-trading and market-timing scheme it ran from about June 1999 to September 2003. The regulator said the firm’s Special Purpose Fund earned some $62 million in ill-gotten gains, with Pentagon and CEO Lewis Chester reaping the incentive fees.

“PCM actively traded U.S. mutual funds through Pentagon Fund’s accounts at numerous broker-dealers in the United States,” the complaint, filed in federal court in New York, said.

Lawyers for Pentagon say they will demonstrate their clients’ innocence in court.


Pentagon To Close After SEC Files Charges

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