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A Miami-based hedge fund and two of its executives agreed to pay almost $3 million to resolve U.S. regulatory claims that they deceived investors about their own stake in the fund and failed to disclose conflicts of interest.
Quantek Asset Management LLC falsely represented that it had “skin in the game” along with investors in a $1 billion Latin America-focused hedge fund from 2006 to 2008, the U.S. Securities and Exchange Commission said today in an administrative order. Quantek, which made the claims in due diligence questionnaires and so-called side-letter agreements, also didn’t properly disclose loans to one of the executives and its former parent company, Bulltick Capital Markets Holdings LP, the SEC said.
The SEC formed a specialized enforcement unit in 2010 to root out investor abuses by hedge funds, focusing in part on whether investment advisers were using a lack of regulatory oversight to conceal conflicts of interest, performance and preferential treatment for certain clients. Under the Dodd-Frank financial regulatory law, thousands of investment firms were required to register with the SEC this year, making them subject to regular inspections.
“Private fund investors are entitled to the unvarnished truth about material information,” Bruce Karpati, co-chief of the SEC unit, said in a statement. “Quantek’s investors deserved better than the misleading information they received in marketing materials, side letters, and other fund documents.”
Side letters are agreements that some hedge-fund advisers use to give certain investors privileges that other clients don’t receive.
Javier Guerra, 41, who was the lead principal of Quantek, also agreed to a five year bar from the securities industry, the SEC said. Ralph Patino, 46, Quantek’s former director of operations and head of compliance, consented to a one-year bar. The agency also sanctioned Bulltick, which agreed to a pay a $300,000 penalty.
Guerra said in a statement that he resigned in October 2011 after helping return about $260 million to investors from the fund, which was forced to liquidate amid global financial market turmoil.
“Prior to the financial crisis my part in the stewardship of the fund helped it generate significant returns to investors,” Guerra said. “When global markets plummeted, the overwhelming majority of investors supported our liquidation plan.”
Stanley Wakshlag, Patino’s attorney, said in an e-mail “We are pleased to have resolved this matter and to have put it behind us.”
Bulltick, which separated from Quantek in 2009, said in a statement that the SEC didn’t allege any securities law violations by any of its current personnel.
“The settlement with the SEC that is announced today concludes the investigation as to Bulltick,” the company said in the statement. “Bulltick cooperated fully with the SEC at all times during the course of this investigation.”
Guerra, Patino, Quantek and Bulltick resolved the SEC’s claims without admitting or denying wrongdoing.
To contact the reporters on this story: Joshua Gallu in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Maura Reynolds at email@example.com