The SEC Has Become More Aggressive in Suing Hedge Fund Managers


Since early 2010, the SEC has filed more than 100 cases against hedge fund managers for misusing investor assets, lying about investment strategy or performance, charging excessive fees, hiding conflicts of interest, and other wrongdoing. These hedge fund frauds have victimized even the most sophisticated investors by falsely promising outsized returns or secured and guaranteed investments. Scam artists are increasingly capitalizing on the cachet of hedge funds.

The SEC has charged two hedge fund managers and their firms with deceiving investors about the handling of investments in their hedge funds. In one case, the SEC alleged that Hausmann-Alain Banet of San Francisco and his firm Lion Capital Management stole more than $500,000 from a retired schoolteacher who thought her retirement savings were in Banet’s hedge fund. In the other case, the SEC charged Chicago-based hedge fund managers Norman Goldstein and Laurie Gatherum and their firm GEI Financial Services with fraudulently misappropriating at least $147,000 in excessive fees and capital withdrawals from a hedge fund they managed.

According to the SEC’s complaint against Banet and Lion Capital Management, Banet led the teacher to believe that his hedge fund would invest in the stock market using a long/short equity investing strategy. Instead, Banet stole the teacher’s $550,000 investment and used it to pay his personal and business expenses, including his home mortgage, office rent, and staff salaries. Banet then provided the teacher with phony account statements showing non-existent investment gains and listing an independent administrator that performed no actual work for the fund.

Banet is also facing criminal charges flowing from the same facts.

According to the SEC’s complaint against Goldstein, Gatherum, and GEI Financial Services, investors in the hedge fund were overcharged fees and inappropriate capital withdrawals were made from the fund. Goldstein, Gatherum, and their firm failed to disclose to investors that Goldstein had his securities registrations revoked in 2011, barring him from providing investment advisory services in the state. Despite having his registration revoked, Goldstein allegedly made all investment decisions on behalf of clients, and he and Gatherum caused GEI Financial Services to violate compliance rules applicable to SEC-registered investment advisers.

Page Perry is an Atlanta-based law firm with over 170 years of collective experience maintaining integrity in the investment markets and protecting investor rights.