An investment adviser settled SEC charges for, among other things, failing to disclose that it transferred the majority of its highest-performing traders from its client hedge fund to a proprietary fund.
According to the SEC Order, the investment adviser created a proprietary hedge fund in order to trade the personal capital of the adviser's personnel, and managed the fund in a way that was detrimental to investors in the adviser's client hedge fund. The highest-performing traders were replaced with a replication algorithm that "generally underperformed" compared to those traders. Furthermore, the SEC found that the adviser failed to adequately disclose (i) the existence of the proprietary fund, (ii) the movement of traders, (iii) the replication algorithm and (iv) the conflicts of interest.
As a result, the SEC charged the adviser with violating SA Sections 17(a)(2) and 17(a)(3) (under "Fraudulent Interstate Transactions") and IAA Sections 206(2) and 206(4) (under "Prohibited Transactions"), as well as Rules 206(4)-7 ("Compliance Procedures and Practices") and 206(4)-8 ("Pooled Investment Vehicles") thereunder.
To settle the charges, the adviser agreed to (i) cease and desist, (ii) a censure, (iii) pay a disgorgement of $107,560,200 and prejudgment interest of $25,154,306, and (iv) a civil money penalty of $37,285,494.
- SEC Press Release: SEC Orders BlueCrest to Pay $170 Million to Harmed Fund Investors
- SEC Order: BlueCrest Capital Management Limited
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