Feds Launch Criminal Probe Against Beacon Hill

February 25, 2003 (PLANSPONSOR.com) - Federal prosecutors have launched a criminal investigation into Beacon Hill Asset Management LLC following previous civil fraud complaints.

Investigators from the US Attorney’s office in New Jersey have convened a grand jury to investigate whether the Summit, New Jersey hedge fund allegedly violated federal securities laws, according to a Wall Street Journal report.

The hedge fund originally drew the raised eyebrows of the US Securities and Exchange Commission (SEC) after losing more than 50% of its value, roughly $400 million, through losses in mortgage-backed securities.   The latest chapter of the saga comes four months after the SEC charged Beacon Hill with civil fraud for allegedly overstating the value of its funds to its investors (See  SEC Files Fraud Charges Against Hedge Fund Company ).

“Over” Statements

Beacon allegedly told investors the Bristol and Safe Harbor Funds were earning around 9% in the spring and summer of 2002.  The company then told its broker, Bear Stearns & Co, that the funds’ total value was $756 million in September.  However, Bear Stearns informed Beacon Hill that the funds held only $259.6 million, according to the complaint. 

After being told of the actual holdings, Beacon Hill told investors that the funds’ values had dropped 25%.  Still, it was not until October 17, 2002 that the company disclosed greater loses than previously stated, reporting a 54% decline.  

The federal scrutiny comes as regulators have focused on several hedge funds following declines in value during the past 12 months. In May, the SEC launched an investigation into the hedge fund industry.  One area of interest is how fund managers value holdings, since investors often rely solely on their analysis for fund values.