London-based hedge fund GLG Partners Inc will pay an estimated $9 million to a US regulator to settle claims that it overvalued the acquisition of a coal mining asset bought by its former money manager Greg Coffey, Bloomberg reported. The hedge fund firm owned by Man Group Plc was ordered by the Securities and Exchange Commission to pay $7.8 million as reimbursement for its clients who excessively paid management and administration fees from 2008 to 2010 as a result of the purchase. In addition, GLG will also pay fines amounting to $750,000.
In a statement, Associate Director of the Enforcement Division of SEC Antonia Chion said, "Investors depend upon fund advisers to have proper controls in place to ensure that valuations and fees are not inflated."
SEC did not name the mining asset that was the subject of the order but a person who have direct knowledge of the matter said the company was Sibanthracite Plc, the report said. The person did not want to be named since the information was not for the public.
The report said the Siberian mining firm was one of the last investments of Coffey before his resignation in 2008. After the company segregated some of Coffey's assets that were hardest to sell and prevented clients from taking out their money, GLG clients were then left with the Sibanthracite stake. GLG established a side-pocketed fund to prevent having to divest holdings for cheap in the credit crunch of 2008, the report stated.
The report quoted GLG spokeswoman Sara Evans as saying, "GLG is pleased that this matter is resolved and remains committed to maintaining robust policies, procedures and practices in line with market conventions."
The SEC said a 25% stake in Sibanthracite was bought by one of Coffey's hedge funds for $210 million in 2007. After the acquisition was completed in March 2008, the stake was worth $425 million. However, the valuation no longer remained true by November 2008 since Sibanthracite had cancelled its plans to go public, coal prices had dropped and emerging market stocks had also declined, the regulator said.
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