Hedge Fund Fined for Fraud

October 28, 2004 (PLANSPONSOR.com) - The Securities and Exchange Commission (SEC) said Thursday that Beacon Hill Asset Management and four of the hedge fund's executives have agreed to pay $4.4 million to settle fraud allegations.

The four executives also agreed to be barred from associating with any investment advisor, according to Reuters. The settlement includes $2 million in penalties and over $2.4 million in disgorgement of illegal gains plus interest.

In the original complaint, the SEC had charged Beacon with materially overstating the net asset values and returns it was earning on its funds, which was conveyed to investors through the distribution of a series of e-mail messages that purported to be a true picture of the performance of the various funds.  However, after a little more digging, the SEC now contends the deception at Beacon Hill took place over a 10-month stretch and that the “manipulative conduct” allowed the hedge fund to “report steady growth and hide losses,” according to a report by TheStreet.com (See SEC Revises Beacon Hill Complaint ).

This move follows the recent SEC announcement that it would require all hedge funds with over 15 investors and $25 million in assets under management to register as investment advisors. Although this action will have little effect on hedge fund investment strategies, many are worried that it will lead towards a ‘slippery slope’ of further regulation of an industry known for secrecy.