The SEC issued an Order Instituting Administrative and Cease-and-Desist Proceedings alleging that Western Pacific Capital Management, LLC (Western Pacific) and Kevin James O’Rourke (O’Rourke) urged many Western Pacific clients to invest in a security without disclosing that Western Pacific would receive a 10% commission. The SEC further alleges that Western Pacific and O’Rourke failed to register as a broker, failed to provide required written disclosures to clients, improperly redeemed one hedge fund investor’s interest ahead of another’s, and made material misstatements and omissions to clients regarding the fund’s liquidity.
The SEC further alleges that during 2005 and 2006 Western Pacific and O’Rourke acted as brokers in the non-public offering of stock by Ameranth, Inc., for which Ameranth paid Western Pacific a 10% “success fee.” Even though Western Pacific and O’Rourke advised their clients to purchase the Ameranth stock, they failed to advise each of their clients that Western Pacific and O’Rourke would financially benefit from the clients’ purchases of stock, and failed to provide any clients with the required written disclosures regarding their role in the offering. Western Pacific received $482,745 in success fees from Ameranth, of which $450,495 was due to investments made by its clients.
According to the SEC’s allegations, from 2005 through 2008, Western Pacific and O’Rourke misrepresented the liquidity of The Lighthouse Fund, LP, a hedge fund that they formed and managed, by repeatedly stating that only 25% of the Fund was invested in illiquid assets, when in fact 90% of its assets consisted of illiquid securities. Western Pacific used Lighthouse Fund assets to resolve a dispute with a client who no longer wanted his $800,000 of Ameranth stock. O’Rourke caused the Fund to buy some of the stock and permitted the client to use the remainder of the stock to finance his investment in the Fund. O’Rourke ultimately redeemed the client’s interest in the Fund for cash ahead of another client who had previously requested a full redemption.
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