The United States has charged Bart Gutekunst, Richard Pereira, and David Bryson, all New Stream Capital LLC hedge fund executives, with securities fraud, wire fraud, and conspiracy. Pereira is New Stream’s former CFO. According to US Attorney David Fein, the defendants ran a securities scam to fool investors so they could get and keep up investments partially because they were afraid they would lose their largest fun investor.
New Stream unveiled new feeder funds in November 2007. It told investors they would have to transfer their investments from a Bermuda-based fund that they were closing to these new ones. However, contend prosecutors, when New Stream’s biggest investor, Gottex Fund Management, intended to redeem its investment in the fund in Bermuda rather than transfer its money to the newer funds, the New Stream executives allegedly came up with a scam to keep the fund going so that the redemption would be reversed.
They are accused of restructuring New Stream’s structure to make sure Gottex Fund Management was prioritized. 2011, the fund and its affiliates petitioned for bankruptcy protection when their multiple restructuring efforts failed. After the US Bankruptcy Court in Delaware approved the firm’s liquidation plan last year, the funds’ investors were able to recover 7 to 19% of their monies.
If convicted, the three men, who were released on bond, face up to 20 years behind bars on each of the 10 securities fraud counts and the eight wire fraud counts. In regard to the single conspiracy count, that comes with a maximum of five years behind bars if there is a conviction.
Meantime, the Securities and Exchange Commission has filed related Connecticut securities fraud charges against Gutenkunst, David Bryson, and New Stream Capital. The regulator contends that they lied to investors about their hedge fund’s financial state and capital structure. Also facing SEC securities charges are Pereira and the firm’s ex-investor relations head Tara Bryson, who has agreed to a proposed settlement.
The Commission claims that after the advisory firm’s co-owners and lead principals made the decision to modify the fund’s capital structure to appease Gottex by giving it priority over other investors should liquidation occur. Gutekunst and David Bryson, with Tara Bryson leading the way, allegedly kept marketing the fund to make it appears as if all investors were on equal ground. They are accused of fraudulently raising close to $50 million in investor money due to these alleged misrepresentations.
The Commission claims that not only would disclosing the capital structural changes have made it harder to keep raising money via the new feeder funds and caused existing investors to pull for redemptions, but also, disclosing this information would have negatively impacted the pecuniary interests of the defendants, while jeopardizing the growth in cash flow coming from a new, profitable fee structure that they had set up in 2011.
If you lost money because your investment was wrecked by securities fraud, contact our stockbroker fraud law firm right away and we will be happy to provide you with a free case evaluation.
SEC Charges Connecticut Hedge Fund Managers With Securities Fraud, SEC.gov, February 26, 2013
New Stream Capital Executives Accused of Fraud, The Wall Street Journal, February 26, 2013
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