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Posted by: Matthew Goldstein on April 22
Maybe the Securities and Exchange Commission’s new motto should be better late than never.
The SEC, on Wednesday, reached a settlement with hedge fund advisory firm Hennessee Group over its role in the $300 million Bayou Group scandal. The SEC, in a civil administrative complaint, charged Hennessee with failing to perform adequate due diligence on Bayou before recommending the hedge fund to its investors. In settling, Hennessee, neither admitted nor denied any wronging, and coughed-up $814,000 in forfeited fees and penalties.
In fining Hennesse, the SEC says it’s sending a message that investment advisors “must make good on their promises or face the consequences of vigorous SEC enforcement action.”
Now that’s a fine message for the SEC to be sending, but the trouble is the Bayou scam unraveled nearly four years ago. In fact, last month, Bayou’s founder Samuel Israel III pleaded guilty in federal court to charges he took flight last summer to avoid serving a lenghty prison sentence for his role in the hedge fund swindle.
One can only wonder if the SEC had acted faster in the Bayou case might it have had some impact on the giant feeders funds that funneled money to Bernard Madoff. The Madoff feeder funds say they did nothing wrong and didn’t know about the enormous Ponzi scheme Madoff was running.
But if hedge fund advisors knew the SEC was scrutinizing their actions, it might have caused some of those firms to dig deeper into Madoff’s business practices.
BusinessWeek's Adrienne Carter, Jessica Silver-Greenberg, and David Henry deconstruct the mysteries of high finance, Wall Street, and hedge funds for pros and ordinary investors. E-mail them directly if you've got tips about big deals, a hedge fund, or even securities industry gossip.