On January 19, the Securities and Exchange Commission announced that it had settled with Equinox Fund Management LLC (Equinox). The SEC order found that Equinox, with respect to its managed futures fund (the Fund), had overcharged management fees to investors and failed to follow its valuation methods as disclosed to investors.
The SEC Order alleges that:
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From 2004 through March 2011, the Fund’s registration statements disclosed that Equinox charged management fees based on the net asset value (NAV) of each series, when Equinox actually charged the Fund management fees based on the notional trading value of the assets (i.e., including leverage), thereby charging the Fund $5.4 million more than what would have been charged upon NAV;
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The Fund’s Form 10-K for 2010 and its Forms 10-Q for the first and second quarters of 2011 disclosed that its methodology of valuing certain derivatives was “corroborated by weekly counterparty settlement values,” when in fact, Equinox received certain information during that timeframe showing that its valuation of certain options was materially higher than the counterparty’s indicative settlement valuations;
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The Fund’s Form 10-Q for the third quarter of 2011 disclosed that an option had been transferred between two series in accordance with the Fund’s valuation policies, when in reality, the option had been transferred using a different valuation methodology than substantially identical options held by other Fund series; and
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The Fund’s Form 10-Q for the second quarter of 2011 failed to disclose as a material subsequent event the series’ early termination of an option (which constituted the series’ largest investment) at a valuation that was materially different than had been recorded for that option.Equinox was ordered to pay $5.4 million in disgorgement of management fees, $600,000 in prejudgment interest and a $400,000 penalty.
The SEC’s press release can be found here.
