QED Benchmark Management LLC and its hedge fund manager Peter Kuperman will resolve U.S. Securities and Exchange Commission charges accusing them of misleading investors about the QED Benchmark LP hedge fund’s historical performance and investment strategy. As part of their settlement they will pay back investors $2.8M in losses. However, by settling they are not admitting or denying the charges.
According to the SEC, the investment advisory firm and Kuperman did not disclose to investors that there were heavy trading losses. They purportedly did this by using a combination of real and hypothetical returns when giving out information about performance history. Marketing strategy included proposing to abide by a scientific stock-selection strategy using algorithms to concentrate on over 280 metrics in the areas of value, momentum, risk, growth, and estimates. The fund was supposed to select investments using the metrics to determine which ones would do better in the market.
QED's offering memorandum and its limited partnership agreement said that no more than 20% of assets could be invested in any one security, while no more than 5% could be invested in a security that was illiquid. The SEC said that none of these agreements were honored.
Because of these alleged misrepresentations, QED Benchmark and Kuperman were able to secure millions of dollars from investors. The two of them are accused of not following the fund’s stated investment plan and placing most of the assets into one penny stock. Misleading and incomplete disclosures about the investment’s liquidity and value were also purportedly made. In just the first quarter that stock earned a 79% loss. When Kuperman presented potential investors with 2009 results, he did not disclose the bad returns and used hypothetical returns instead.