The Securities and Exchange Commission has filed a complaint against two individuals and six entities under their control over an alleged USD30m hedge fund fraud and obtained a temporary r
The Securities and Exchange Commission has filed a complaint against two individuals and six entities under their control over an alleged USD30m hedge fund fraud and obtained a temporary restraining order, asset freeze and appointment of a receiver from a Georgia court.
The complaint alleges that Coadum Advisors, Mansell Capital Partners III, James A. Jeffery, Thomas E. Repke, Coadum Capital Fund 1, Coadum Capital Fund II, Coadum Capital Fund III and Mansell Acquisition Company engaged in fraud in conjunction with a series of four securities offerings that began in early 2006.
Two of the offerings are ongoing, and the SEC says approximately USD30mm has been raised from around 150 investors. The complaint also alleges that Jeffery, based in Ontario, Canada, and Repke of Holladay, Utah, control the entities and are directing the offerings.
The complaint alleges that the defendants have falsely represented to investors that they will receive a return of 3 to 6 per cent per month, and that their principal is protected and never leaves the escrow account, and that they have failed to disclose that the defendants have made loans to themselves from the investor proceeds.
In reality, the SEC says, the defendants have transferred the majority of the funds to Exodus Equities, a so-called investment platform based in Malta, which in turn appears to have placed the funds in the Exodus Platinum Genesis Fund, a Bermuda hedge fund that has yet to begin operation, and in supposed ‘pre-Reit convertible bonds’ that have yet to provide any return.
The complaint also alleges that the defendants have falsely represented in monthly account statements to investors that they have earned approximately 4 per cent per month, and that all or most of their principal is in escrow. Finally, the SEC alleges that, without disclosure to investors, Coadum and Mansell have borrowed more than USD3m from or secured against the investors’ funds and have disbursed about USD5m to related parties.
The complaint alleges that all defendants violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, while that defendants Coadum, Mansell, Jeffery and Repke also violated Sections 206(1) and 206(2) of the Investment Advisers Act of 1940.
Orinda D. Evans, the US District Judge for the Northern District of Georgia, has issued an order temporarily restraining the defendants from violations of the antifraud provisions of the Securities Act and Exchange Act, and restraining Coadum, Mansell, Jeffery and Repke from violations of the Adviser’s Act.
The court order requires an accounting of all funds received by the defendants as set out in the complaint, temporarily freezes the assets of the eight defendants, expedites discovery and prohibits destruction of documents, and appoints a receiver for the six corporate defendants.
