Miami Hedge Fund Adviser Charged for Misleading Investors about “Skin in the Game” and Related-Party Deals

May 29, 2012

The SEC charged Quantek Asset Management LLC, a Miami-based hedge fund adviser, with deceiving investors about whether its executives had personally invested in a Latin America-focused hedge fund.  The SEC found that Quantek made various misrepresentations about fund managers having “skin in the game” along with investors in the $1 billion Quantek Opportunity Fund.  Instead, the SEC alleges that Quantek’s executives never invested their own money in the fund. The SEC also found that Quantek misled investors about the investment process of the funds it managed as well as certain related-party transactions involving its lead executive Javier Guerra and its former parent company Bulltick Capital Markets Holdings LP.
According to the SEC, fund investors frequently inquire about the extent of the manager’s personal investment during their due diligence process, and many require it in fund selection. Quantek misrepresented to investors from 2006 to 2008 that management had skin in the game. These misstatements were made in response to specific questions posed in due diligence used to market the funds to new investors. Quantek made similar misrepresentations in side letter agreements executed by Guerra with two sought-after institutional investors.
The SEC also found that Quantek misled investors about certain related-party loans made by the fund to affiliates of Guerra and Bulltick. Because the fund permitted related-party transactions with Bulltick and other Quantek affiliates, investors were wary of deals that were not properly disclosed. In 2006 and 2007, Quantek caused the fund to make related-party loans to affiliates of Guerra and Bulltick that were not properly documented or secured at the outset. Quantek and Bulltick employees later re-created the missing related-party loan documents, but misstated key terms of the loans and backdated the materials to give the appearance that the loans had been sufficiently documented and secured at all times. Quantek and Guerra provided this misleading loan information to the fund’s investors.
Click http://www.sec.gov/litigation/admin/2012/33-9326.pdf to access the administrative action.
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Investment Advisers, Investment Companies