SEC Freezes Assets of Michael Lauer's Hedge Funds (Update2)
July 11 (Bloomberg) -- The U.S. Securities and Exchange Commission froze the assets of Michael Lauer's Lancer Management Group LLC, saying the hedge fund manager overvalued his portfolio in violation of securities laws.
Lauer, who worked on Wall Street as an analyst before founding his own firm in 1994, inflated the performance and value of his funds, which he claimed exceeded $1 billion in assets, the SEC alleged in papers filed in Federal Court in the Southern District of Florida. The SEC has stepped up its scrutiny of hedge funds and last year examined 12 separate cases of possible fraud.
Lauer ``systematically manipulated the month-end prices of certain securities held by the funds to overstate the value in the funds' holdings in virtually worthless companies,'' the SEC said in a statement on its Web site.
The SEC alleges Lauer made false statements in his offering documents and engaged in fraudulent practices to entice new investors and keep current investors in the fund. The court issued an `emergency order'' to freeze the assets of Lauer's funds and appointed Marty Steinberg, a lawyer at Hunton & Williams LLP in Miami, to safeguard the funds, the SEC said in its statement.
Lauer wasn't available for comment at his New York office. A hearing is set for July 18, the SEC said in its statement.
The SEC in May began a wider review of the hedge fund industry -- loosely regulated private partnerships open only to institutions and individuals worth at least $1 million -- to determine whether greater oversight is required. One SEC concern is how hedge funds value portfolios, especially how they price securities that don't trade regularly, much like some of Lauer's holdings.
Investor Lawsuits
The increase in alleged fraud corresponds with the industry's growth. About 3,500 new hedge funds opened during the past five years and there are now about 6,000 funds worldwide, according to Tremont Advisers Inc. in Rye, New York. Assets have soared to about $620 billion from about $50 billion in 1990.
Some investors had anticipated problems at Lauer's offshore and domestic funds at the end of last year and sought to withdraw about $360 million, or more than a third of Lancer's total reported assets. The run began last year after the firm's auditors raised questions about how the 47-year-old Lauer valued Lancer's holdings.
Faced with lawsuits from investors including investment bank Morgan Stanley, Lauer in April put his domestic fund into voluntary bankruptcy.
Thinly Traded
Lauer started his firm saying he would make money trading in small companies ignored by other investors. Some of the companies he invested in were Simex Technologies Inc., Cross Media Marketing Corp., Lighthouse Fast Ferry Inc. and Continental Southern Resources Inc. The shares, priced at less than $10, trade thinly on over-the-counter markets, if at all.
In 1996, Lauer's Lancer Offshore fund told investors it rose 130 percent in its first full year, compared with the 16.5 percent gain of the Russell 2000, the benchmark index for small-cap stocks.
Before founding Lancer Management, Lauer worked more than a decade as an analyst at brokerages including Kidder Peabody & Co. He specialized in industrial, defense, aerospace and technology companies, and was named to Institutional Investor Magazine's All- American Research Team every year from 1987 to 1993.
Last Updated: July 11, 2003 08:42 EDT |
