Securities Lawyer 101 l Brenda Hamilton

Securities Lawyer 101 l Brenda Hamilton

Tuesday, November 26, 2013

SEC Announces First Deferred Prosecution Agreement

On November 12, 2013, the Securities and Exchange Commission (the “SEC”) announced a deferred prosecution agreement with Scott Herckisa, a former hedge fund administrator at Hellelwhite Fund LP, who assisted the SEC in an investigation involving Berton M. Hochfeld, a hedge fund manager who allegedly stole assets from investors.
Deferred prosecution agreements reward individuals and companies who provide the SEC with forthcoming information about misconduct and assist with a subsequent investigation.  In return for the information provided, the SEC refrains from prosecuting cooperators for their own violations if they comply with certain undertakings.

According to SEC, as a result of voluntary and significant cooperation from Herckis, it filed an emergency enforcement action against for misappropriating more than $1.5 million from the hedge fund and overstating its performance to investors.
The SEC’s enforcement action halted the fraud and froze the hedge fund’s assets and Hochfeld’s personal assets, which are now being used to compensate defrauded investors.  Last month, a federal court judge approved a $6 million distribution to harmed Heppelwhite investors.
According to the DPA, Herckis served as the fund’s administrator from December 2010 to September 2012, when he resigned and contacted government authorities with his concerns about Hochfeld’s conduct and certain discrepancies in Heppelwhite’s accounting records.  Herckis voluntarily produced voluminous documents and described to the SEC how Hochfeld was able to perpetrate his fraud.  As a result, the SEC was able to file the emergency action within weeks.
Under the terms of the DPA, which states that Herckis aided and abetted Hochfeld’s securities law violations, Herckis must comply with certain prohibitions and undertakings.  Herckis cannot serve as a fund administrator or otherwise provide any services to any hedge fund for a period of five years, and he also cannot associate with any broker, dealer, investment adviser, or registered investment company.  The DPA requires Herckis to disgorge approximately $50,000 in fees he received for serving as the fund administrator, which will be added to the Fair Fund that has been created to help compensate Heppelwhite investors.  A second round of distributions from the Fair Fund is expected after additional money is collected for harmed investors through the sale of Hochfeld’s personal assets, including a collection of antiques he paid for with stolen funds.
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