SEC fines San Francisco-based hedge fund managers in settlement

Dec 23, 2010 by Charles Gubert

The US Securities and Exchange Commission (SEC) has ordered a San Francisco-based hedge fund to pay more than $1 million to settle claims they misused client assets while investing into subprime automobile loans.

The SEC claimed chief executive officer Benjamin Chui and former portfolio manager Triffany Mok – who managed the $100 million American Pegasus Auto Loan Fund, together with former general counsel Charles Hall Jr engaged in improper self-dealing and failed to disclose conflicts of interest.

The individuals settled without admitting or denying the SEC’s allegations.

The SEC alleged Chui, unbeknownst to investors, used more than $18 million in loans and advances from the Auto Loan Fund to purchase the fund’s sole supplier of auto loans for himself, Hall and Mok in mid 2007. They also said Chui used millions in cash borrowed from the Auto Loan Fund to prop up other hedge funds he managed.

By late 2008, approximately 40% of the Auto Loan Fund’s assets consisted of ‘loans’ to the fund managers’ related businesses – with fund investors being charged fees based on these undisclosed related party payments, said the SEC.

According to the SEC’s order, Chui, Hall and Mok essentially wiped much of this debt to the fund off the books by selling assets to the fund at a 300% mark-up. Chui, with help from Hall and Mok, bought an auto loan portfolio for $12 million in February 2009 and then sold it to the Auto Loan Fund the same day for more than $38 million. The fraudulently inflated sale was used to erase money owed to the fund for the various related-party transactions.

“Fund advisers have a duty to disclose conflicts of interest and act in the best interests of clients whose assets they are entrusted to manage,” said Marc Fagel, director of the SEC’s San Francisco Regional Office.

“Instead, Chui, Hall and Mok created a tangled financial web, using investor funds for their personal benefit and then attempting to paper over the misconduct by inflating the value of fund assets,” added Fagel.

As well as the fines, Chui has been barred from associating with an investment adviser for five years while Hall and Mok face three and one year bars respectively.


Regulation , Legal

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