The National Futures Association (NFA) has ordered Duet Asset Management Ltd, an NFA member commodity pool operator (CPO) and commodity trading adviser (CTA) located in London, to pay a USD1 million fine.
The decision, issued by NFA's Business Conduct Committee (BCC), is based on a complaint authorised by the BCC on 1 May 2017, and a settlement offer submitted by Duet Asset Management Ltd.
The complaint alleged, among other things, that Duet Asset Management caused its pools to make prohibited loans and advances to entities affiliated with its chief executive officer, Henry Gabay, a listed principal of the firm, and used pool assets to make these loans and invest in other transactions that furthered the interests of Gabay and his affiliates, rather than those of pool participants.
The complaint also alleged that Duet Asset Management permitted Gabay and his affiliates to misuse pool assets by pledging these assets as collateral to guarantee financial obligations of Gabay and his affiliates, failed to adequately disclose material information to participants in two pools regarding Gabay and his affiliates' involvement in one of the pools' investments, and paid redemptions that did not take into account the highly illiquid nature of particular stock holdings.
The complaint further alleged that Duet Asset Management used misleading promotional material regarding the personal investments of the chief investment officer for Duet Asset Management's Global Plus Fund and permitted an unregistered individual – Gabay – to act as an associated person (AP) of the firm without being registered as such.
In addition to the USD1 million fine, the BCC ordered Duet Asset Management to provide notice of NFA's disciplinary action to its former, current and future clients, and to register Gabay as an AP of the firm.
A spokesperson for Duet says: “Duet Group specialises in niche investment strategies involving complex and added-value transactions. It takes advantage of cross-fertilisation among its various asset classes, from long-only equity, debt funds, hedge funds, private equity and real estate, to create above average returns for its sophisticated, institutional investor base.
“Duet Asset Management (DAM) failed to appreciate the extent to which NFA rules prohibit related parties transactions, even when done on commercially reasonable terms. These types of related parties transactions would ordinarily be allowed by other regulatory bodies as long as they are properly disclosed to investors. The transactions in question were generally disclosed in our fund annual reports or elsewhere.
“DAM believes these transactions should not be characterised as a misuse of the pools’ assets, were done for the pools’ benefit, and in almost every instance resulted in market, or above-market returns for the pools. Investor funds were not harmed in any way.
“DAM fully cooperated with the NFA and has decided to settle, without admitting or denying the violations. Since January 2016, DAM has already undertaken remedial measures to prevent any future violation of NFA rules, including the creation of an internal policy prohibiting all related parties transactions falling under the NFA’s jurisdiction.”
