SEC Charges California Wealth Advisor with Fraud
The Securities and Exchange Commission has filed fraud charges against a San Marino, California advisory firm and its owner for allegedly misleading investors about the profitability of a fund they managed.
Tweed Investment Services Inc. and its owner, Robert “Rusty” Tweed, formed Athenian Fund L.P. to invest in a master fund that would use a quantitative stock trading strategy. The fund purportedly raised more than $1.7 million from 24 investors.
According to the SEC complaint, Tweed and his firm initially invested the money in the stock trading strategy, but later moved the funds into a completely different fund, the Quantitative Analytics Master Fund, which was operated by a business acquaintance of Tweed’s.
In October 2010, Tweed learned that approximately 40 percent of the QAMF investment was tied up in a one-year loan to a third party, and when he asked for the money to be refunded, less than half of the funds were returned.
Tweed and his firm then used a portion of the returned capital to invest in a software business run by friend of Tweed’s. Neither investment was profitable and ultimately lost a combined $800,000 in investor capital.
Rather than notify the Athenian Fund investors of the change in investment strategy and the losses on those investments, Tweed allegedly concealed those losses from investors by issuing false and misleading account statements that made the fund appear profitable.
The complaint also alleges that investors who were able to redeem their interests received more money than they were entitled to because their redemptions were based on inflated asset values. The complaint further alleges that Tweed misled investors for years, and only disclosed the losses after SEC examiners and state regulators uncovered the fraud during routine examinations.
The SEC’s complaint, filed in the U.S. District Court for the Central District of California, seeks permanent injunctions and civil penalties.
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