CHICAGO (HedgeWorld.com)–The Honorable Blanche M. Manning, of the U.S. district court for the northern district of Illinois, has ordered the assets and accounts of Charles L. Harris, Winnetka, Ill., frozen and prohibited the destruction of the books and records pertaining to his hedge fund, Tradewinds International LLC.
Judge Manning acted on a complaint from the Commodity Futures Trading Commission alleging that Mr. Harris had misrepresented the value of the commodity pool that Tradewinds manages, issued fraudulent statements to investors and misappropriated investor funds.
Specifically, in 2003, Mr. Harris allegedly represented to investors that his fund’s net asset value was between US$18 million and US$23 million, whereas at the time its total value was only US$1.1 million.
In July 2004, Mr. Harris sent certain key investors emails and a videotape in which he admitted having falsely reported profits in 2003 when in fact, he said, the pool was down between 8 and 18 percent for the year. In those communications, Mr. Harris also said that he has “structured myself offshore” in order to regain the lost profits in a “nominee account” at an undisclosed financial institution at his undisclosed location.
Judge Manning issued her order Sept. 1. The CFTC said, in a statement Sept. 2, that Mr. Harris’ current whereabouts are unknown.
“Harris continues to mislead pool participants as to the status of their interest,” the complaint alleges. In conversations with some participants, he has claimed “that the Pool’s troubles were based on ‘one mistake,’ an ‘accounting error.’” In reality, the complaint continues, the troubles were based in large part on trading losses–as indicated by the records of Refco LLC and O’Connor and Company LLC, both registered futures commission merchants–and in some part on the use of investor funds for Harris’ personal and business expenses.
The CFTC is seeking orders of preliminary and permanent injunction against the defendants, a return of alleged ill-gotten gains, repayments to defrauded investors, monetary penalties and other relief. It said that it has coordinated its investigation with the Securities and Exchange Commission.
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