The SEC has accused Chetan Kapur, a manager of a fund of hedge funds, with deceptive conduct in investing in hedge funds that are either Ponzi schemes or fraudulent.
In a civil complaint filed in federal court in Manhattan, the SEC claims that Kapur and ThinkStrategy Capital Management misrepresented informtaion concerning fund performance and did not meet its stated due diligence requirements. It invested money in hedge funds such as Bayou Superfund; the Valhalla/Victory funds and Finvest Primer Fund " that were later revealed to be Ponzi schemes or other serious frauds,'' the SEC said.
"From the firm's inception, ThinkStrategy and Kapur engaged in a pattern of deceptive marketing designed to bolster the purported size, credentials and experience of ThinkStrategy as a hedge fund manager," says the SEC. "These misrepresentations gave the appearance that ThinkStrategy was a sophisticated operation with a well-credentialed team, when in fact the team was a one-person operation with few supporting employees."
ThinkStrategy has $520 million in assets but did not qualitative due dilience before investing in the Bayou Superfund, which turned out to be a Ponzi scheme. The same applied to ThinkStrategy's investment in the other funds.
"Had ThinkStrategy adhered to its stated due diligence standards, and required audited financial statements certified by bona fide accounting firms, it would not have invested detrimentally in those funds," the SEC says.
Yet other fraudulent statements made by ThinkStrategy: it said that in 2008 it garnered a 22.6 percent return for its Capital Fund-A when it dropped in performance the actual performance dropped by 77.9 percent from the pervious year.
Without admitting or denying the allegations, ThinkStrategy and Kapur consented to the entry of a judgment permanently enjoining them from violating securities regulations. An undisclosed monetary penalty was imposed.
-- This article first appeared on Securities Technology Monitor.