The Securities and Exchange Commission has announced charges against a New York-based fund manager and his two firms for luring investors into a trading program that would purportedly maximise their profits but instead spent their money in unauthorised ways.
The SEC alleges that since at least November 2011, Jason J Konior and his firms raised approximately USD11 million by selling investors limited partnership interests in Absolute Fund LP, an investment vehicle that Konior claimed had USD220 million in trading capital. Konior and his firms falsely claimed that Absolute Fund would allocate millions of dollars in matching investment funds, place the combined funds in brokerage accounts through which investors could trade securities, and operate a “first loss” trading program that would allow investors to dramatically increase their potential profits.
However, the SEC alleges that instead of using investor funds for trading purposes, Konior and his firms Absolute Fund Advisors (AFA) and Absolute Fund Management (AFM) siphoned off approximately USD2 million of the proceeds to pay redemptions from earlier investors and to pay their personal and business expenses.
The SEC obtained an asset freeze against Konior and his companies late yesterday in federal court in Manhattan.
“Konior falsely portrayed Absolute Fund as a legitimate investment vehicle designed to maximize investors’ access to trading capital in order to grow their hedge fund businesses,” says Bruce Karpati, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “In reality, Konior’s operation became a way for Konior to funnel cash to his firms and himself for unauthorized purposes.”
According to the SEC’s complaint, Konior falsely represented to several investors that upon receipt of their investments, Absolute Fund would:
• Allocate capital of up to nine times the amount of the investor’s capital contribution. • Place the combined funds in a sub-account at a broker-dealer through which the investor could trade securities. • Allocate any trading losses first to the investor’s contribution amount, and then any trading profits would be shared between Absolute Fund and the investor.
The SEC alleges that Absolute Fund did not actually operate the first loss trading program as promised for these investors. Absolute Fund also did not provide these investors with any matching funds or satisfy investor demands for returns of their capital contribution.
The SEC’s complaint charges Konior, AFA, and AFM with violating the antifraud provisions of the Securities Exchange Act of 1934 and seeks, among other things, permanent injunctive relief, disgorgement of ill-gotten gains, and financial penalties. Without admitting or denying the allegations in the SEC's complaint, Konior, AFA, and AFM have consented to the entry of an order freezing their assets, imposing a preliminary injunction against further violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and providing other relief. The Honorable Judge Louis L Stanton issued the court order granting such relief.
The SEC’s investigation, which is continuing, is being conducted by Catherine Lifeso, Lara Mehraban, Kerri Palen, and Ken C Joseph of the New York Regional Office. Ms Lifeso, Ms Mehraban, and Mr Joseph are members of the Enforcement Division’s Asset Management Unit. Aaron Arnzen is leading the SEC’s litigation.