AUSTIN, Texas (HedgeWorld.com)–Veras Investment Partners LLC, a Sugar Land, Texas, hedge fund manager involved in the mutual fund trading scandal, had its state investment adviser registrations revoked, as did two of its employees, James R. McBride and Kevin D. Larson.

The Texas State Securities Board revoked the registrations after Veras refused to comply with requests to read Veras’ email, for failure to update its state ADV registration and for allowing Mr. Larson to act as an investment adviser while not officially registered.

Denise Voigt Crawford, Texas State Securities Commissioner and spokeswoman for the Securities Board, said her office would not be taking any more action against Veras, though the SEC still can. And she said the Texas Securities Board is looking at all registered Texas hedge funds in search of similar problems.

Officials for Veras, located in a Houston suburb, declined comment. The firm and Messrs. McBride and Larson agreed to the order but did not admit or deny the findings of the board beyond some basic facts. In Spanish, the word Veras can be translated to mean “truth” or “you’ll see.”

Veras first was identified as a mutual fund trader in October when James P. Connelly, an executive for New York-based Fred Alger Management & Co. Inc., was arrested, convicted and barred from the industry in a deal arranged with both New York State Attorney General Eliot Spitzer and the Securities and Exchange Commission. Mr. Connelly was accused, among other things, of trying to conceal mutual fund trades by Veras from Mr. Spitzer’s office and the SEC .

The Texas Securities Board’s inspections and compliance division visited Veras unannounced shortly after, on Oct. 21, according to the state’s order. The inspection resulted in the board finding that Veras’ ADV was not up-to-date–it said Veras managed no money when it actually managed US$1 billion–and in requests for information and copies of emails, according to the order. The ADV also did not mention several partnerships Veras managed, the Texas board states.

Veras’ legal counsel refused to answer the board’s questions on that day and subsequently declined to provide all the emails requested, citing attorney-client privilege, according to the order.

The SEC’s complaint in October noted that in February 2003, Mr. Connelly accepted a US$10 million investment in an Alger small capitalization fund from Veras in exchange for giving Veras the ability to time trades of US$50 million in that very fund. Then in July, Veras received another US$30 million in capacity in exchange for an additional US$12 million investment in the fund.

An Associated Press story on Veras said the firm apparently had already stopped operating as an investment manager before the Texas order went into effect on Feb. 24.

PBarr@HedgeWorld.com