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SEC files action against RKC Capital

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The Securities and Exchange Commission has filed a Complaint in federal district court against RKC Capital Management LLC, RKC Capital, LLC (RKC) and Russell K Cannon (Cannon), (collectively “Defendants”).

The Complaint alleges that the Defendants artificially inflated the assets of a hedge fund they managed, RKC Matador Fund LLC (Matador), to defraud Matador investors.

The Complaint alleges that from at least November 2007 through July 2011, Defendants engaged in fraudulent conduct to overstate the assets under management of Matador. Defendants did this through causing the price of Matador’s largest holding, stock in Global Pari Mutuel Services, Inc (Global), to artificially increase by “marking the close” of Global’s stock. Marking the close is a manipulative trading practice designed to cause the price of a stock to rise at the close of the market. The Defendants also falsely inflated the fund’s assets by instructing Matador’s fund administrator to record the price of Matador’s holdings in Global above the actual market price for approximately 15 months. Cannon also misused RKC’s client accounts to aid his practice of marking the close and to enhance Matador’s profits.

According to the Commission’s Complaint filed in US District Court for the District of Utah, the Defendants falsely represented to investors that Matador’s assets under management and performance returns were greater than they actually were. In fact, at its peak, Matador’s assets under management were overstated by over 100% and its performance returns were significantly overstated for several months. In addition, investor statements the Defendants provided to Matador investors, which reflected the holdings and performance of persons who invested in Matador, were also significantly overstated. The Defendants made these misrepresentations to investors to convince investors to invest in Matador and to obtain excessive advisory fees.

The Commission’s Complaint seeks to enjoin the Defendants from future violations of Sections 17(a) of the Securities Act of 1933, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and Sections 206(1), (2) and (4) of the Advisers Act of 1940 and Rule 206(4)-8 thereunder, and seeks the payment of disgorgement and civil penalties.

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