Fri, 27/02/2009 - 06:01
The Commodity Futures Trading Commission has filed an action in the US District Court in the Southern District of New York against New York City fund manager Mark Evan Bloom and his firm, North Hills Management.
The complaint charges Bloom and North Hills Management with misappropriating over USD13m of the assets of North Hills, a fund managed by the defendants, and investing North Hills Fund assets contrary to the represented investment strategy.
Bloom and North Hills Management are also charged with defrauding North Hills Fund participants in connection with distributions made in the name of the fund in a 2005 CFTC anti-fraud action brought against another fund operator, the Philadelphia Alternative Asset Management Company (Paamco) and Paul Eustace.
Mark Bloom's wife, Lauren Bloom, was named as a relief defendant.
According to the CFTC's complaint, Bloom originally formed the North Hills Fund and created North Hills Management, with the purported design of an enhanced stock index fund, trading, among other things, commodity futures contracts and options.
In 2001, Bloom converted the fund into a fund of funds. As alleged, the defendants provided existing and prospective fund participants with documents outlining, among other things, that the objective of the fund was to invest and trade in all forms of financial investments, including commodities and commodity contracts, and that its policy was 'seeking satisfactory returns while minimising risk.'
The CFTC's complaint alleges that Bloom, instead of following the purported strategy of the fund, misappropriated at least USD13m from the North Hills Fund for the personal use of himself and his wife. The defendants took the money by executing purported promissory notes in the name of Bloom and his wife in which they provided a personal guarantee, stating in writing that the funds were for the benefit of Bloom and his wife. The notes were payable on demand by North Hills Management to North Hills Management.
As alleged, Bloom used the North Hills Fund's assets to support a lavish life style. For example, Bloom executed a promissory note of approximately USD5m and in March 2003 he and his wife purchased a luxury apartment in Upper Manhattan for USD5.2m. Bloom later transferred his ownership to his wife who sold the apartment in 2007 for USD11.2m.
The CFTC's complaint also alleges that after taking over USD13m for his personal use, in 2004 and 2005 Bloom invested approximately USD17m of North Hills Fund assets in the Philadelphia Alternative Asset Fund a high risk commodity futures and options fund operated by Paamco. This investment represented at least half of the assets of North Hills Fund and was contrary to the moderate risk asset allocation strategy that Bloom represented was the strategy for the North Hills Fund. North Hills Fund participants only learned of the investment after the CFTC sued and shut down Paamco and Eustace in late June 2005.
Bloom also failed to inform North Hills Fund participants that he had received referral fees totalling USD1.6m for referring prospective investors to Paamco, including North Hills Fund.
Allegedly, Bloom also never informed North Hills Fund participants that a receiver appointed in the CFTC action had distributed approximately USD9m in distributions in the name of North Hills Fund or that Bloom had compromised the North Hills' interest in the Philadelphia Alternative Asset Fund distributions through a third party agreement.
Bloom also never disclosed that he had received approximately USD8m in the name of the North Hills Fund pursuant to the third party agreement. Bloom has not accounted for those funds.
The CFTC complaint further alleges that Bloom concealed his frauds from North Hills Fund participants by sending out monthly account statements showing profitable results and providing written updates on the progress of the CFTC's action against Paamco and receiver's efforts to recover assets. Based on Bloom's rosy statements and updates, North Hills Fund participants expected to receive distributions from the receivership estate.
'This action demonstrates the length to which unscrupulous individuals will go to defraud investors. Here, proceeds that were recovered from another fraud were recovered for the benefit of North Hills investors and appear to have been misappropriated a second time by Bloom,' says Stephen J. Obie, acting director of enforcement.
In its continuing litigation, the CFTC seeks an order of permanent injunction against the defendants, restitution, disgorgement of ill-gotten gains, monetary penalties and trading and registration bans.
The Securities and Exchange Commission filed a related action in the same court, charging securities fraud against Bloom and North Hills Management and naming as relief defendants the North Hills Fund and Lauren Bloom. The US Attorney's Office for the Southern District has filed a criminal complaint against Bloom, and Bloom has been arrested.
Paamco should not be confused with the Pacific Alternative Asset Management Company.
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