The Securities and Exchange Commission late Thursday obtained an emergency court order to freeze the assets of SJK Investment Management in Greensboro, N.C.

The federal regulator has charged the investment advisory firm and its owner diverted millions of dollars to themselves through a variety of "self-dealing transactions."

By the SEC's account, SJK Investment Management LLC and its CEO Stanley Kowalewski raised more than $65 million by marketing two hedge funds to various investors including pension funds, school endowments, hospitals and non-profit foundations.

Kowalewski placed $16.5 million of their money in an undisclosed, wholly controlled, new fund that he created, and then misused it in a number of ways, the SEC said. Among the mis-uses: purchaisng a vacation home for approximately $3.9 million. He also sold his personal home to the fund for nearly $1 million more than the price he paid for it, and then continued to live in the house "essentially rent-free," the SEC said.

Calls to SJK Investment Management and Stanley Kowaleski Friday morning were not returned.

"Kowalewski treated these funds like his own personal bank account and siphoned off millions of dollars that his clients entrusted to him," said William P. Hicks, Associate Regional Director of Enforcement in the SEC's Atlanta Regional Office. "He breached his responsibilities as an investment adviser in the worst manner possible."

The SEC filed a complaint filed Thursday in federal court in Atlanta.

The compliant alleges that SJK and Kowalewski began diverting investor money in August 2009 — almost immediately after receiving the first investor proceeds — to pay their personal and business overhead expenses under the pretense that they were "start-up" expenses for the funds.

SJK and Kowalewski "never advised investors of the existence of the third fund, much less their complete control over it, the large amounts "invested" into it, or the existence and nature of their self-dealing transactions and misuses of investor money,'' the SEC said. Akin to the Bernard L. Madoff Investment Securities fraud, Kowalewski and SJK sent fraudulent monthly account statements to investors showing substantial and positive — but illusory — investment returns.

Kowalewski used approximately $3.9 million of investor money in May 2010 to buy a vacation house on Pawley's Island, S.C., and in October 2010, SJK took $4 million of investor money in the form of a purported "administration fee" and "salary draw."

Throughout last year, Kowalewski used investor money to pay personal expenses and SJK's rent and other overhead, in stark contrast to how he represented those monies would be used.

U.S. District Judge for the Northern District of Georgia Timothy C. Batten, Sr., granted the SEC's request for an emergency asset freeze, temporary restraining order, and other remedies against Kowalewski and SJK Investment Management.


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