SEC Sues Unregistered Hedge Fund For Fraud

Feb 26 2009 | 11:15am ET

The Securities and Exchange Commission has charged a hedge fund and its principal defrauding hundreds of investors out of millions of dollars.

The agency has asked a court to freeze the assets of Pearl River, N.Y.-based Westgate Capital Management and its managing member, James Nicholson, for defrauding investors and prospective investors in 11 hedge funds by misrepresenting the value of the hedge funds, and using sales materials boasting of an allegedly false record of investment success.

According to the SEC complaint, at least one Westgate fund claimed positive returns in 98 of 99 consecutive months. Nicholson allegedly created a fictitious accounting firm and providing some of his investors with bogus audited financial statements. He apparently concocted this imposter firm under the name of an actual accountant while using his own telephone number and driver's license to set up a “virtual office.”

By late 2008, the Nicholson’s funds had sustained such losses that he could no longer honor redemption requests and hid his losses from investors with bogus sales brochures. He also closed one fund that was heavily invested in Lehman Brothers and folded its assets into another fund. In addition, he issued bad checks to some investors seeking to cash out, and ultimately suspended all investor redemptions due to what he called investors' “irrational behavior.”

The SEC is seeking an emergency court order freezing the assets of Nicholson, Westgate, and the hedge funds, preventing the destruction of documents, granting expedited discovery and requiring Nicholson and Westgate to provide accounting. Additionally, the SEC seeks preliminary and permanent injunctions, disgorgement, and financial penalties against both defendants.


In Depth

Exotic Assets: Investing In Rare Violins

Jan 17 2017 | 4:43pm ET

By definition, alternative investments include exotic assets far beyond your typical...

Lifestyle

'Tis the Season: Wall Street Holiday Parties Back In Fashion

Dec 22 2016 | 9:23pm ET

Spending on Wall Street holiday parties has largely returned to pre-2008 levels...

Guest Contributor

The Trump Administration: What It Could Mean for Carried Interest

Jan 19 2017 | 5:25pm ET

The arrival of the Trump administration brings the potential for a repeal of the...