Sunday, January 2, 2011

SEC Charges Hedge Fund Managers with Offering Fraud

The Securities and Exchange Commission announced today that it filed a civil injunctive action against Robert Buckhannon, Terry Rawstern, Dale St. Jean and Gregory Tindall (the "Managing Members"), the four managing members of two now-defunct hedge funds, Arcanum Equity Fund, LLC and Vestium Equity Fund, LLC (the "Funds"), through which they conducted an offering fraud that raised $34 million from 101 investors throughout the U.S. and Canada. The SEC also charged Imperium Investment Advisors, LLC, a registered investment adviser which served as trustee for Vestium Equity Fund, and its three principals, Richard Mittasch, Christopher Paganes and Glenn Barikmo, for their roles in the scheme.

The SEC's complaint, filed in the U.S. District Court for the Middle District of Florida, alleges that from April 2008 through April 2010, the Managing Members raised funds promising investors that they would generate substantial returns through conservative investments in high-grade debt instruments and, in some cases, limited physical commodities transactions. Additionally, the offering materials and prospectus for Vestium Equity Funds further assured investors that Imperium would safeguard their funds from impermissible uses. Contrary to these assurances, however, the defendants disregarded the Funds' respective investment parameters and used investor funds for illiquid private investments and loans to affiliate entities. Additionally, although the Funds incurred investment losses of at least $8.1 million, the Managing Members disseminated monthly statements falsely depicting consistent profits and paid at least $6 million to investors in alleged profits. The Managing members further paid themselves over $1.3 million in compensation that was improperly based on inflated asset values and fictitious profits. The SEC's complaint further alleges that Buckhannon, Mittasch, Paganes and Barikmo collectively misappropriated at least $734,000 of investor funds to themselves and others.

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