Law books and gavel

New York-based hedge fund manager and firm fined USD5m

The Securities and Exchange Commission has secured final judgments against hedge fund manager Chetan Kapur and his firm, ThinkStrategy Capital Management, ordering them to jointly and severally pay disgorgement and prejudgment interest of USD3,988,196.59 and civil penalties in the amount of USD1m.

The final judgments stem from a civil injunctive action filed by the Commission on 10 November 2011. The SEC’s complaint alleged that over nearly seven years, Kapur and ThinkStrategy engaged in a pattern of deceptive conduct designed to bolster their track record, size, and credentials.

In particular, Kapur and ThinkStrategy materially overstated the performance of their ThinkStrategy Capital Fund, giving investors the false impression that the fund’s returns were consistently positive and minimally volatile. The complaint also alleged that Kapur and ThinkStrategy repeatedly inflated the firm’s assets, exaggerated the firm’s longevity and performance history, and misrepresented the size and credentials of ThinkStrategy’s management team.

With respect to a second hedge fund they managed, the TS Multi-Strategy Fund, the complaint alleged that Kapur and ThinkStrategy misstated the scope and quality of due diligence checks on certain managers and funds selected for inclusion in the fund-of-funds’ portfolio. As a result, the TS Multi-Strategy Fund made investments in certain hedge funds that were later revealed to be Ponzi schemes or other serious frauds, including Bayou Superfund, Valhalla/Victory Funds, and Finvest Primer Fund.

The Commission charged Kapur and ThinkStrategy with violations of 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 Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder.

Without admitting or denying the allegations in the Commission’s complaint, Kapur and ThinkStrategy consented at the time of filing the complaint to the entry of judgments permanently enjoining them from violating the above provisions, and to entry of an SEC order permanently barring Kapur from association with any investment adviser, broker, dealer, municipal securities dealer, municipal adviser, transfer agent, or nationally recognised statistical rating organisation. The SEC order was entered on 18 November 2011.

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