Hedge Fund Adviser Charged with Operating an Illicit Bank Conversion Scheme

October 31, 2011

The SEC filed a civil injunctive action against Drake Asset Management, LLC, of Glen Head, New York, and Oliver R. Grace, Jr., of Hobe Sound, Florida, for conducting a scheme to evade the group purchase limits of the public offerings of seven banks that were converting from mutual to stock ownership.


The SEC alleges that, from 2003 through 2007, Grace knowingly or recklessly failed to disclose his association with certain entities, including hedge funds managed by Drake, which participated in the offerings alongside Grace. Under Grace’s direction, Drake also knowingly or recklessly failed to disclose the hedge funds’ association with Grace. By failing to disclose these associations, the SEC stated that Grace and the Drake hedge funds were able to acquire stock that exceeded the offerings’ group purchase limits, in violation of offering terms and banking regulations.  The SEC alleges that Drake and Grace, to conceal their relationships and group activity from converting banks and their underwriters, arranged for the hedge funds and Grace’s other associated entities to take steps to prevent the banks from associating these group orders. Over the course of the scheme, Drake and Grace generated $610,781 in ill-gotten gains. Because the seven offerings at issue were oversubscribed, the scheme harmed other bank depositors by limiting the amount of stock available to them.

Click here to access the administrative action.


Categories

Enforcement Actions, Investment Advisers, Investment Companies