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SEC Shuts Down Kansas Hedge Fund, Alleging Fraud

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WICHITA, Kan. (–TrueHedge Advisors LLC managing member Scott B. Kaye raised nearly US$2 million in assets from 18 investors in mid-2002 by telling them they were investing in his hedge fund, TrueHedge Capital Partners LP.

But according to a lawsuit filed by the Securities and Exchange Commission in U.S. District Court in Wichita, Mr. Kaye spent US$735,000 of the money on himself, including using US$531,000 of that money to build “an expensive personal residence,” according to the SEC complaint.

Mr. Kaye invested most of the remainder of the assets as he said he would, in stocks and options, but the investments turned out to be money-losing strategies. Today only about US$126,900 remains in TrueHedge accounts, according to the SEC.

Mr. Kaye told his investors, most of them unsophisticated, that the losses represented on the occasional account statements they received from him were the result of his unsuccessful investment strategy, a general market downturn and bad luck, SEC officials said in the complaint.

When investors questioned the performance, Mr. Kaye made a religious appeal, telling them he was a Christian and that he would “do everything in his power to earn back investment losses,” according to the complaint.

In December 2003, after several investors insisted on leaving the fund, Mr. Kaye acknowledged he had used more than half a million dollars to build himself a new house but claimed it was part of the investment strategy, according to the complaint.

SEC officials asked for and received from the court permission to freeze the assets of Mr. Kaye and TrueHedge. As part of its complaint, the SEC will seek to force Mr. Kaye to turn over any profits he may have made, interest he may have earned and also pay civil penalties.

The Kansas Securities Commission has been helping the SEC in its investigation.

Mr. Kaye could not be contacted by press time.

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Contact Bob Keane with questions or comments at: [email protected].