SEC Uncovers Illicit Matching Funds Schemes

May 25, 2012

The SEC brought charges against a New York-based fund manager and his two firms for luring investors into a trading program that would purportedly maximize their profits but instead spent their money in unauthorized ways.  The SEC alleges that since at least November 2011, Jason J. Konior and his firms, Absolute Fund Advisors (AFA) and Absolute Fund Management (AFM), raised approximately $11 million by selling investors limited partnership interests in Absolute Fund LP, an investment vehicle that Konior claimed had $220 million in trading capital.  Konior and his firms falsely claimed that Absolute Fund would allocate millions of dollars in matching investment funds, place the combined funds in brokerage accounts through which investors could trade securities, and operate a “first loss” trading program that would allow investors to dramatically increase their potential profits.
However, the SEC alleges that instead of using investor funds for trading purposes, Konior, AFA and AFM siphoned off approximately $2 million of the proceeds to pay redemptions from earlier investors and to pay their personal and business expenses.
Konior falsely portrayed Absolute Fund as a legitimate investment vehicle designed to maximize investors’ access to trading capital in order to grow their hedge fund businesses, but in reality, Konior’s operation became a way for Konior to funnel cash to his firms and himself for unauthorized purposes.  According to the SEC, Konior falsely represented to several investors that upon receipt of their investments, Absolute Fund would:
• Allocate capital of up to nine times the amount of the investor’s capital contribution.
• Place the combined funds in a sub-account at a broker-dealer through which the investor could trade securities.
• Allocate any trading losses first to the investor’s contribution amount, and then any trading profits would be shared between Absolute Fund and the investor.
The SEC alleges that Absolute Fund did not actually operate the first loss trading program as promised for these investors.  Absolute Fund also did not provide these investors with any matching funds or satisfy investor demands for returns of their capital contribution.
Click to access the administrative action.


Investment Advisers, Investment Companies