SEC Charges Missing Trader for Defrauding Investors at Sarasota-Based Hedge Funds
Jan 22, 2009
SEC Prese Release–January 21, 2009
Washington, D.C., Jan. 21, 2009 – The Securities and Exchange Commission today charged Arthur Nadel of Sarasota, Fla., with fraud in connection with six hedge funds for which he acted as the principal investment advisor. According to the SEC’s complaint, Nadel provided false and misleading information for dissemination to investors about the funds’ historical returns and falsely overstated the value of investments in the funds by approximately $300 million.
* Litigation Release No. 20858
* SEC Complaint
According to the SEC’s complaint, the funds appear to have total assets of less than $1 million. The complaint also alleges that Nadel recently transferred at least $1.25 million from two of the funds to secret bank accounts that he controlled. Nadel reportedly has been missing since Jan. 14, 2009. The SEC also alleges that two entities with which Nadel was associated, Scoop Capital LLC and Scoop Management, Inc., provided investment advice to all of the funds and also engaged in fraud as a result of Nadel’s actions. The SEC has obtained an emergency court order freezing defendants’ assets and appointing a receiver.
David Nelson, Director of the SEC’s Miami Regional Office, said, “Investors should be able to rely on the truthfulness of an account statement and offering materials. Mr. Nadel’s alleged actions deceived investors, and we are seeking to hold him accountable for that misconduct.”
The six hedge funds and two other investment management companies are charged as relief defendants in the SEC’s complaint. The SEC alleges that Nadel provided false and misleading information to the relief defendants for dissemination to investors through account statements and through offering memoranda. For example:
* Offering materials for three of the funds represented that they had approximately $342 million in assets as of Nov. 30, 2008. In fact, those funds had a total of less than $1 million in assets at that time.
* Offering materials for at least several of the funds represented monthly returns of around 11 to 12 percent between January and November 2008. In fact, at least three of the funds had negative returns during that time and another fund had lower than reported returns.
* One investor in one fund received an account statement for November 2008 indicating that her investment was valued at almost $420,000. In fact, the entire fund had less than $100,000 at that time.
The SEC filed its emergency action in the U.S. District Court for the Middle District of Florida alleging that the defendants violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeking, among other things, injunctions, disgorgement plus prejudgment interest, and civil money penalties.
United States District Judge Richard A. Lazzara granted all of the emergency relief requested by the SEC, including a temporary restraining order, asset freeze, and other relief against Nadel.
Without admitting or denying the allegations of the SEC’s complaint, Scoop Capital and Scoop Management consented to the entry of, among other things, preliminary injunctions, asset freezes, and the appointment of a receiver. The SEC is seeking disgorgement plus prejudgment interest against each of the relief defendants (advisers Valhalla Management, Inc. and Viking Management, LLC and hedge funds Scoop Real Estate, L.P., Valhalla Investment Partners, L.P., Victory IRA Fund, Ltd., Victory Fund, Ltd., Viking IRA Fund, LLC, and Viking Fund, LLC). Without admitting or denying the allegations of the complaint, they consented to asset freezes and the appointment of a receiver.
The SEC recognizes cooperation that has been provided by Scoop Capital and Scoop Management, and by the relief defendants. The SEC’s investigation is continuing.