WASHINGTON (HedgeWorld.com)–Offerings from Win Capital Corp., Shelman Securities Corp. and Neil W. Brooks are the subject of the most recent enforcement actions from the NASD, which is warning its membership against marketing their hedge funds and private investment partnerships.
NASD officials found the alleged fraudulent offerings as part of its ongoing review of its members that sell hedge funds and registered products that invest in hedge funds. According to a spokesman, there is no official timeline for finishing up the review.
The assets actually raised in each offering seem small given the size of most hedge funds in the market. The NASD in its announcement of the fraud cases specifically refers to offerings of US$1 million and US$2 million, but the final tally of assets raised by the firms in question remains unknown.
Charging officials with securities fraud, the NASD scrutinized offerings of Long Island, N.Y.-based Win Capital Corp., charging Steven J. Bayern, the firm’s chairman and Patrick M. Kolenik, its president, with securities fraud in connection with a hedge fund offering. The financial regulatory body stated that in July 2002, Messrs. Bayern and Kolenik formed Huntington Laurel Partners LP, a hedge fund, and were principals of Huntington Laurel Capital Management.
NASD accused Messrs. Bayern and Kolenik of self-dealing through their hedge fund in purchasing a note from Cyndel & Co. Shelman Securities Corp., Dallas, which is a company both jointly controlled. So, regulators have charged Shelman Securities Corp. and Mark C. Parman, the firm’s chairman, in the case, too, alleging that Shelman and Mr. Parman made fraudulent offers and sales of more than US$2 million of unregistered securities in the form of limited partnership interests to at least 104 investors located throughout the United States.
Mr. Parman faces additional charges from the NASD, alleging that in his capacity as the president and sole owner of Prism Independent Consulting Inc., he drafted private placement memoranda provided to investors in the offerings that were inaccurate and incomplete. The same complaint said that none of the securities were registered with the Securities and Exchange Commission or any other regulatory authority and that no exemption from registration was available. According to the NASD, investors in these securities lost at least US$1.7 million.
The final case is against an individual. Neil W. Brooks settled with the NASD, consenting to charges that he offered and sold securities in the form of limited partnership interests and promissory notes. The NASD said it found that Mr. Brooks provided sales materials to investors that contained materially false and misleading information. A former registered representative with Allstate Financial Services, Mr. Brooks agreed to be barred from the securities industry for conducting a fraudulent hedge fund offering, according to an NASD announcement.
“As hedge funds are increasingly marketed to retail investors, the need to disclose all the risks and material facts becomes paramount,” Mary L. Schapiro, NASD’s vice chairman and president of regulatory policy and oversight, said in a statement. “Brokers cannot mislead investors by failing to disclose material facts when selling these or any securities.”
These more recent cases are the continued fallout stemming from NASD’s frontline attack to make sure that hedge funds and funds of funds being sold by its members are on the up and up. Earlier this year, the regulatory service provider issued a notice to its membership regarding their obligations when selling hedge funds .
Then there was the Altegris Investments fine that left many in the hedge fund industry wondering who was next. In April, the La Jolla, Calif.-based firm was fined US$175,000 for failing to disclose the risks associated with hedge funds when marketing them to investors. The NASD also censured and fined Altegris’ Chief Compliance Officer Robert Amedeo US$20,000 for failing to adequately supervise the firm’s advertising practices Previous HedgeWorld Story.