The Securities and Exchange Commission has filed a complaint against the $43 million hedge fund, Groundswell Partners, for doctoring financial statements with the intention of misleading investors, The Wall Street Journal reports.

The Waltham, Mass.-based hedge fund, founded by Mark Conway, had been impressing investors with what most would call stellar returns, through a mathematical strategy used to attract investments from hedge fund professionals, institutions and individuals.  

But last month, Aron Behle, Conway's partner, wrote a letter to an investor, disclosing that Conway had admitted to altering the financial statements of the company. Conway created fictitious brokerage statements, accounting reports, auditor and audit reports and fund performance information, Behle said he Conway had confessed.

The SEC filing, filed in a federal court in Massachusetts, accuses Conway of defrauding his clients by not unveiling millions in losses and the fact that the fund now holds only $14 million.

Conway's attorney, John Carman, said, "Mr. Conway has not opposed any measure suggested by the SEC that is designed to protect the interests of shareholders of the fund."

The case comes on the heels of other investigations into alleged fraud at hedge funds, including Bayou Management, Wood River Partners and KL Financial Group. "Hedge funds are attracting massive amounts of money," said Walter Ricciardi, head of the SEC's Boston office. "Unfortunately, they are also attracting fraudsters."

Flows to International Mutual Funds Soar

Investors Show Greater Confidence in Companies Abroad

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.