The SEC has obtained an order to freeze the assets of investment adviser Michael Kenwood Capital Management LLC and firm principal Francisco Illarramendi, who is accused of taking at least $53M from a hedge fund and fraudulently transferring investor money from several funds to bank accounts he controlled. Illarramendi then allegedly took that money and placed it in private-equity investments.
The SEC’s securities fraud complaint charges the investment adviser and Illarramendi with violating the 1940 Investment Advisers Act. Rather than using the money to benefit investors, Illarramendi allegedly used the money to his benefit and for the benefit of the entities under his control. The SEC says that it sought emergency relief because it was afraid that Illarramendi was going to make additional, unauthorized investments.
The largest private equity investment Illarramendi made was in an unnamed West Coast nuclear energy company. The SEC says he used $23 million in investor funds. A foreign company pension fund that was his biggest investor contributed 90% of the money in his funds.
In December 2009, Illarramendi allegedly authorized for $3.5 million to be transferred from an account to a Spanish company that makes rolled steel. In May 2010, he approved the transfer of $20 million from the financial firm’s $540 million Short Term Liquidity Fund to pay for shares in a clean-tech manufacturing company. He transferred another $4 million from the short-term fund to purchase shares in a development stage energy company. Another $3.1 million was transferred from different funds to the Spanish steel company.
The SEC is accusing Illarramendi of using clients’ money as if they were his and diverting millions of the investors’ funds. The commission says he breached his responsibilities as an investment adviser and abused clients’ trust. The SEC is seeking disgorgement of ill-gotten gains, permanent injunction, plus prejudgment interest.
Named as relief defendants that received investor money that they weren’t entitled are Michael Kenwood Asset Management LLC, MKEI Solar LP., and Kenwood Energy and Infrastructure LLC. Illarramendi, who is the majority owner of Michael Kenwood Group LLC, managed several hedge funds. One of the hedge funds has held up to $540 million in assets.
Related Web Resources:
SEC Charges Connecticut-Based Hedge Fund Manager for Fraudulent Misuse of Investor Assets, SEC, January 28, 2011
Read the SEC Complaint (PDF)
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3 Hedge Funds Raided by FBI in Insider Trading Case, Stockbroker Fraud Blog, November 23, 2010
$2.6M Texas Securities Fraud Settlement: Hedge Fund Adviser Settles SEC Allegations Involving Violations Related to Improper Public Stock Offering Participation After Short Selling, Stockbroker Fraud Blog, October 5, 2010
If you are a hedge fund investor who lost money and you suspect broker misconduct, contact our stockbroker fraud lawyers immediately.