In a 35-page complaint filed by the Securities and Exchange Commission on Wednesday, the agency accuses Jersey City, N.J.-based hedge fund Yorkville Advisors of misrepresenting the value of its assets and lying about performance, The New York Times reported.
Allegedly, Yorkville benefited by an extra $10 million in fees it collected based on $280 million it coaxed from investors using false information, according to The Times and an SEC press release.
Yorkville founder and president Mark Angelo and chief financial officer Edward Schinik were charged.
Yorkville responded to the complaint with a statement attacking the SEC's case, saying it, "vigorously disputes all of the allegations contained in the SEC's complaint as they lack merit and are entirely without support."
This is the seventh case to come out of the SEC's Aberrational Performance Inquiry initiative under its Enforcement Division's Asset Management Unit. The Unit operates by using proprietary risk analytics to identify hedge funds with suspicious returns.
Yorkville is one of the larger funds to be charged, The Times reported, having managed as much as $1 billion in assets at one time.
"The analytics put Yorkville front and center on our radar screen," said Bruce Karpati, head of enforcement at the commission's asset management unit. "When we looked further, we found lies to investors and the firm's auditors as well as a scheme to inflate fees by grossly overvaluing fund assets," the press release noted.
Yorkville's tactics have been the subject of a number of Forbes articles, one of which highlighted the progress of YA Global Investment Fund I, which "never had a down month from February 2001 to July 2008." Then, "a stunning reversal saw it report a drop of 33% in 2010, most of it in the single month of December 2010, suggesting a big mark-to-market adjustment while the stock market was rising," as quoted from an article on the Forbes website.
In its public statement made regarding the suit, Yorkville contends its innocence.
"Yorkville at all times has acted appropriately and implemented robust control procedures to ensure the proper valuation of assets. This has included employing two former SEC enforcement attorneys to sit on its valuation committee," the firm said, as reported by The Times.
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