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SEC Charges Broker for Diverting Assets to Hedge F

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NEW YORK (–Stone House Capital Partners LP, a purported hedge fund, is at the center of a fraud case involving the misappropriation of funds in certain brokerage accounts.

The Securities and Exchange Commission is alleging that Todd M. Eberhard of Eberhard Investment Associates and Park South Securities diverted US$9.7 million out of brokerage accounts to Stone House, which Mr. Eberhard claimed was an unaffiliated San Francisco-based hedge fund that held US$1.6 billion in Eberhard customer funds.

In truth, Stone House operated out of Park South’s offices in Melville, N.Y., and had US$1.75 million in two accounts with Banc of America Securities, according the SEC. One of the BofA accounts was a contribution account, while the other was a prime brokerage account with assets being first deposited in December 2002. On Dec. 20, Stone House allegedly received, by wire transfer to the contribution account, at least US$250,000 from Robert Pellegrini’s Park South IRA account.

Mr. Eberhard allegedly fabricated a fax containing summary data for two Stone House accounts containing US$9.7 million for Mr. Pellegrini, who invested with Mr. Eberhard in 1999 on the recommendation of Mr. Pellegrini’s personal trainer. The SEC said that Mr. Eberhard was able to conceal substantial losses by diverting the assets.

Stone House is a New York general partnership formed in 2000 by Michael Rutigliano and John Michael Xirinachs as general partners. Besides sharing offices with Park South, Mr. Xirinachs is a registered representative with Park South.

The SEC is asking the U.S. District Court of the Southern District of New York for a temporary restraining order and asset freezes for any of their customers’ assets that have been transferred to the Stone House. There is also an order for appointing a temporary and permanent receiver for the firms and verified accountings by all defendants, expedited discovery and an order preventing the destruction of documents.

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