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SEC charges fugitive trader with defrauding investors at Sarasota-based hedge funds

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The US Securities and Exchange Commission has charged Arthur Nadel, the Sarasota, Florida-based hedge fund manager who disappeared last week as investors pressed him for USD50m in redempti

The US Securities and Exchange Commission has charged Arthur Nadel, the Sarasota, Florida-based hedge fund manager who disappeared last week as investors pressed him for USD50m in redemptions, with fraud in connection with six 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 overstated the value of investments in the funds by as much as USD300m.

The commission says the funds appear to have total assets of less than USD1m, and alleges that Nadel recently transferred at least USD1.25m from two of the funds to bank accounts that he controlled.

The SEC also alleges that two entities with which Nadel was associated, Scoop Capital and Scoop Management, provided investment advice to all of the funds and also engaged in fraud as a result of Nadel’s actions. The regulator has obtained an emergency court order freezing the defendants’ assets and appointing a receiver.

David Nelson, director of the SEC’s Miami regional office, says: ‘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 regulator alleges that Nadel provided false and misleading information to the relief defendants for dissemination to investors through account statements and through offering memoranda.

Examples include offering materials for three of the funds that represented that they had approximately USD342m in assets as of November 30, 2008, when in fact they had a total of less than USD1m at the time.

Offering materials for several of the funds represented monthly returns of around 11 to 12 per cent between January and November 2008. In fact, at least three of the funds had negative returns during that time and another had returns that were lower than reported.

One investor in one fund received an account statement for November last year indicating that her investment was valued at almost USD420,000. In fact, the entire fund had less than USD100,000 at the time.

The SEC filed its emergency action in the US 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. 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 SEC’s allegations, 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 and Viking Management and hedge funds Scoop Real Estate, Valhalla Investment Partners, Victory IRA Fund, Victory Fund, Viking IRA Fund and Viking Fund. Without admitting or denying the allegations of the complaint, they consented to asset freezes and the appointment of a receiver.

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