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Hedge Fund Lied About Its Principals' Having Skin in The Game': SEC
Hedge Fund Lied About Its Principals' Having Skin in The Game': SEC
Hedge Fund Lied About Its Principals' Having Skin in The Game': SEC
Hedge Funds
Hedge fund lied about its principals' having 'skin in the game'
The SEC has settled charges against investment adviser Quantek Asset Management LLC and two managers who told investors in two Latin American alternative
investment funds that the executives had invested large portions of their own money in the funds between 2006 and 2008, regulators said.
Quantek, lead executive Javier Guerra and operations director Ralph Patino, misled investors about their executives having “skin in the game” when investors were
deciding whether to invest in the two Quantek Opportunity Funds, which grew to $1 billion in assets, the Securities and Exchange Commission said in an administrative
complaint. Quantek’s executives never invested their own money in the funds, but investors were told in marketing materials and side letter agreements that they did,
the complaint said.
In addition, Quantek misled investors about the investment process of their funds and about related-party loans the funds made to Mr. Guerra and former parent
company Bulltick Capital Markets Holdings LP, the complaint said.
The adviser, Bulltick, Mr. Guerra and Mr. Patina agreed to pay a total of $3.1 million in fines and disgorgement to settle the allegations. Mr. Guerra agreed to be barred
from the securities industry for five years and Mr. Patina agreed to a one-year bar, the SEC said.
“When making an investment decision, private fund investors are entitled to the unvarnished truth about material information such as management’s skin in the game or
the adviser’s handling of related-party transactions,” said Bruce Karpati, co-chief of the SEC enforcement division’s asset management branch. “Quantek’s investors
deserved better than the misleading information they received in marketing materials, side letters and other fund documents.”
The SEC said it’s common for investors to ask whether executives of hedge funds have “skin in the game” during the due diligence process. In this case, two
institutional investors invested $100 million in the funds after being told executives were personally invested. The investors also secured agreements that they would be
notified if Quantek principals withdrew a certain percent of their investment in the fund, the SEC said.
A statement from Quantek and Mr. Guerra, who said he resigned from the funds in October 2011, said the Opportunity Funds were forced to liquidate during the global
financial crisis, just as other asset-backed lending investment funds at that time, and had helped to return $260 million to investors.
“Prior to the financial crisis, my part in the stewardship of the fund helped it to generate significant returns to investors,” Mr. Guerra said. “When global markets
plummeted, the overwhelming majority of investors supported our liquidation plan.”
Mr. Patino “is pleased to have resolved the matter and have it put behind him,” said his attorney Stan Wakshlag of Kenny Nachwalter P.A. in Miami.
Bulltick, which separated from Quantek in January 2009, said “none of the Quantek employees involved in the events discussed in the administrative order are currently
employed at Bulltick” and that it fully cooperated with the SEC during the investigation.
All the parties settled the matter without admitting or denying the allegations.
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2/19/2021 Hedge fund lied about its principals' having 'skin in the game': SEC - InvestmentNews
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