Former Hedge Fund Founder Ordered to Pay $5 Million for Securities Law Violations

The US District Court for the Southern District of New York recently ordered the investment adviser to two hedge funds, and its managing director, to pay nearly $5 million in disgorgement, prejudgment interest and civil penalties for violations of the federal securities laws. Defendant Chetan Kapur, through his company ThinkStrategy Capital Management, LLC, induced investors into buying shares in two hedge funds he managed by making misstatements about the hedge funds’ past and present performance, their assets, longevity, and other material misrepresentations. Defendants subsequently entered into consent judgments with the Securities and Exchange Commission and the court, and agreed to pay disgorgement of ill-gotten gains, prejudgment interest thereon, and civil penalties. The SEC requested disgorgement in the amount of $3.25 million; the approximate profits derived from the violations. The court rejected defendant’s’ argument that any legitimate business expenses should be deducted from this amount on the grounds that Kapur commingled business and personal expenses and did not maintain any books and records that distinguished between these expenses. On this basis, the court: (i) approved the entire amount of disgorgement requested by the SEC, (ii) approved over $700,000 in prejudgment interest, and (iii) granted the SEC’s request for third-tier civil penalties, the most severe level available.

Securities and Exchange Commission v. Kapur, LILABOC, LLC d/b/a/ ThinkStrategy Capital Management, LLC, 11 Civ. 8094 (PAE) (S.D.N.Y. Nov. 29, 2012).

 

Topics:  Disgorgement, Hedge Funds, Investment Adviser, Penalties, SEC, Securities

Published In: Business Torts Updates, Civil Remedies Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Katten Muchin Rosenman LLP | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »