SEC Tackles Hedge Fund Fraud via Deferred Prosecution
In a first for the regulator, the SEC has announced a deferred prosecution agreement (DPA) with former hedge fund administrator Scott Herckis who helped the regulator take action against hedge fund manager Heppelwhite Fund, which the SEC charged with stealing investor assets.The DPA states that 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, according to SEC officials. Herckis voluntarily produced documents and told the SEC how Hochfeld allegedly committed fraud.
With “voluntary and significant cooperation from Herckis,” the SEC was able to file an emergency enforcement action in November 2012 against Heppelwhite, which was founded and managed by Berton M. Hochfeld, who was accused of “misappropriating more than $1.5 million from the hedge fund and overstating its performance to investors,” say SEC officials.
The SEC halted the fraud and froze the hedge fund’s assets and Hochfeld’s personal assets, which are being used to compensate defrauded investors, SEC officials say. “Last month, a federal court judge approved a $6 million distribution to harmed Heppelwhite investors,” according to the SEC.
“To balance these competing considerations, the DPA holds Herckis accountable for his misconduct but gives him significant credit for reporting the fraud and providing full cooperation without any assurances of leniency,” said Scott W. Friestad, an associate director in the SEC’s Division of Enforcement, in a statement.
The terms of the DPA specify that Herckis aided and abetted Hochfeld’s securities law violations, and that Herckis cannot serve as a fund administrator or otherwise provide any services to any hedge fund for a period of five years, SEC officials say. He also cannot associate with any broker, dealer, investment adviser, or registered investment company.
In addition, 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, SEC officials say. 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.
DPAs “encourage individuals and companies to provide the SEC with forthcoming information about misconduct and assist with a subsequent investigation,” SEC officials say. “In return, the SEC refrains from prosecuting cooperators for their own violations if they comply with certain undertakings.”
Societe Generale CIB Transitions to Post-Trade Service
Societe Generale Corporate and Investment Banking (SG CIB) is transferring its securities processing back-office operations to Accenture Post-Trade Processing, a service launched by Accenture and Broadridge Financial Solutions, bank and vendor officials say.
The post-trade processing service is collaboration between Accenture’s business process outsourcing offerings and Broadridge Financial Solutions post-trade processing technology, officials say. The combination can accommodate other functions such as reconciliations and corporate actions processing.
SG CIB officials say the cost-cutting solution is helping the bank become more competitive and more responsive to regulatory and market infrastructure changes. The bank completed its first transitional phase on Oct. 14.
The firm will use the Accenture Post-Trade Processing service to oversee settlement, asset servicing, reference data, reconciliation and administrative accounting, according to the agreement between Accenture and the bank announced in July, officials say. The initiative requires several SG CIB employees with post-trade processing skills to join Accenture, officials say.
For the second phase of the project, Accenture will transfer the firm’s securities processing to a multiple entity platform based on Broadridge technology, officials say. The platform targets compliance with new and existing regulations, provides access to real-time trade information and facilitates the launch of new financial products and explorations of new markets. The new platform will allow Accenture Post-Trade Processing to serve multiple clients operating in Europe and Asia-Pacific, officials say.
Nittan Capital Deploys Fenics FX Software
Nittan Capital, an interdealer broker in the Asia-Pacific region specializing in derivatives, will be using the Fenics Professional pricing and risk management system for foreign exchange options for its Singapore and Hong Kong offices, officials say.
The Fenics Professional application programming interface helps Nittan Capital staff capture FX option trade details and send them through to their back office systems and to their client network without human intervention, say vendor and broker officials. The Fenics Professional suite includes pricing, distribution, risk management, analytics and straight through processing components.
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