The SEC Charges Atlanta Hedge Fund Managers With Fraud
The Securities and Exchange Commission has charged two Atlanta hedge fund managers, Paul T. Mannion, Jr. and Andrews S. Reckles, as well as their investment advisor firms with defrauding Palisades Master Fund, L.P. investors, according to an article in the Atlanta Journal Constitution by J. Scott Trubey. The advisor firms are PEF Advisors Ltd. and PEF Advisors, LLC.
In essence, Mannion and Reckles are charged with: (1) overvaluing illiquid fund assets that they placed in a so-called "side pocket" account, (2) misappropriation of fund assets, and (3) making material misrepresentations in connection with a private stock offering. A "side pocket" is an account used by hedge funds to segregate illiquid investments from the remainder of the investments in the fund.
According to the SEC's complaint, the defendants placed the hedge fund's investments in World Health Alternatives, Inc. in a "side pocket" and inflated the value of those investments in order to mislead investors take excessive management fees from the fund.
In addition, Mannion and Reckles allegedly stole approximately $1.6 million of warrants in World Health that belonged to the fund and misappropriated investors' funds for their own personal investments.
In July 2005, Mannion and Reckles, allegedly failed to disclose a $2 million purported loan from the fund, which they used to finance their personal investments, and separately used another $13,000 from the fund to pay for services not rendered to the fund and to purchase warrants for their personal accounts.
The SEC also alleged that the defendants made material misrepresentations in connection with a February 2004 “private investment in public equity” (PIPE) offering conducted by Radyne ComStream Inc.
The SEC is seeking injunctive relief, disgorgement of profits, prejudgment interest, and financial penalties. The case, styled as Securities and Exchange Commission v. Paul T. Mannion, Jr., Andrew S. Reckles, PEF Advisors Ltd., and PEF Advisors, LLC, is pending in the United States District Court for the Northern District of Georgia, Atlanta Division.
Mannion is currently registered with Streetcapital, Inc., a Roswell, Georgia broker-dealer. Reckles is currently registered with Moody Capital Solutions, Inc., an Alpharetta, Georgia broker-dealer. These brokerage firms were legally obligated to take reasonable steps to supervise the activities of their registered representatives, even with regard to investments that were not offered through those firms. Brokerage firms can be held liable to customers for failure to supervise their brokers, and they are subject to the rules of the Financial Industry Regulatory Authority (FINRA) and its arbitration process for customer claims.
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