Friday, 1 August 2014
Last updated 14 hours ago
Jan 21 2009 | 2:56am ET
Investors in a collapsed hedge fund have suffered a pair of legal setbacks in a California court.
A federal judge in Santa Ana this week dismissed a lawsuit against brokerage firm Associated Securities Corp. The investors had sought to hold Associated accountable for alleged misrepresentations about the hedge fund, APEX Equity Options Fund, made by Jeffrey Forrest, who was registered with Associated.
But the court ruled that Forrest was acting on behalf of his own firm, WealthWise, and not as an agent of Associated when he marketed the APEX fund to some 60 clients, who invested roughly $40 million. APEX collapsed in August 2007 after making allegedly undisclosed high-risk investments, including in subprime securities. In March, the Securities and Exchange Commission filed civil charges against the hedge fund’s manager, Salt Lake City-based Thompson Consulting, followed by fraud charges against Forrest and San Luis Obispo, Calif.-based WealthWise in September. According to the SEC, Forrest failed to disclose a conflict of interest to his clients, alleging that WealthWise was paid some $350,000 in kickbacks from TCI over a two-and-a-half-year period.
In another blow to Forrest’s aggrieved clients, the judge ruled that that the APEX fund’s documents included disclaimers about the risks inherent in investing in the hedge fund.
“We argued that certain fraud claims should be barred because the plaintiff received a PPM [private placement memorandum],” David Markun, Associated’s attorney, said. “When you invest, you sign a subscription agreement saying you’ve been given this.”
The suit against Associated was brought by Richard Kelter, who had $4 million invested in APEX. Associated said it may seek legal fees from him. Kelter’s attorney called his client “highly disappointed.”
WealthWise clients are currently involved in binding arbitration proceedings against Forrest.
Jul 8 2014 | 10:48am ET
The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…