Hedge fund frozen
by: aa116000
Long-Term Sentiment: Strong Buy 07/12/03 06:35 am
Msg: 150302 of 150314
Judge Freezes Hedge Fund's Assets
Fri Jul 11, 2:50 PM ET Add Business - Reuters to My Yahoo!
By Svea Herbst-Bayliss
BOSTON (Reuters) - A Florida judge froze the assets of a U.S. hedge fund after the Securities and Exchange Commission (news - web sites) alleged the fund's manager manipulated stock prices to overstate the fund's value, federal regulators said.
The SEC said Judge William Zloch on Thursday issued a temporary restraining order against Lancer Management Group, LLC and Lancer Management Group II, LLC and its manager Michael Lauer after the commission filed a complaint alleging Lauer and the funds violated federal anti-fraud provisions.
Neither representatives of the fund nor Lauer could be reached for comment.
An SEC spokeswoman gave no additional information, saying the commission never comments on ongoing complaints.
The news comes at a critical time now that hedge funds are posting only meager returns and federal regulators are mulling new restrictions on the loosely regulated $600 billion industry.
In papers filed with the court, the SEC alleges that Lauer has been pumping up his funds' performance data and net asset values since March 2000 and used this information to attract new investors and keep old ones from leaving.
Lauer, who once managed at least $1 billion, invested heavily in thinly traded stocks and counted investment bank Morgan Stanley, pension funds and celebrities like Alfred Taubman, the former chairman of auction house Sotheby's, among his clients.
LAWSUIT PRECEDES BANKRUPTCY
News that something was wrong at Lancer surfaced in March when Morgan Stanley sued the fund after an investment had soured. A month later, Lancer filed for Chapter 11 bankruptcy protection to avoid a fire sale of its assets.
This week, the hedge fund was sued again. The pension fund at Canada's University of Montreal is trying to get Lancer to return the money it invested with the fund.
Hedge fund managers generally keep investments locked up for months and often refuse to discuss their trading strategies with clients for fear of having rivals copy their moves.
Widespread secrecy illustrates one of the potential risks of investing with hedge funds and prompted the SEC to begin probing the industry over a year ago. SEC officials note a sharp rise in hedge fund fraud cases, saying the commission brought 12 cases in 2002, up from seven in 2001, six in 2000, and two in 1999.
Apart from the SEC's concerns, many institutional investors are seething because they have lost millions with certain hedge funds whose managers refuse to tell them what happened.
Even though the Lancer case is the latest in a string of high-profile hedge-fund disasters, managers and investors alike say it is too soon to speculate whether this case will deal a blow to the industry.
"The case is under review and until there are more concrete facts, I don't think anyone can say anything informative about how this may affect the industry," said Philippe Bonnefoy, investment adviser for alternative investment strategies at Commerzbank Securities.
Lancer's troubles come on the heels of problems at other once high-flying hedge funds. Earlier this year, Gotham Partners Management Co. was accused of trying to manipulate stock prices with its research reports, allegations that are being investigated by state and federal financial regulators. |
