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Regulation and Compliance > Federal Regulation > SEC

SEC Moves to Freeze Northshore Assets

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CHICAGO (–In an emergency action filing, the U.S. Securities and Exchange Commission is requesting a freeze on Northshore Asset Management LLC’s assets. The commission alleges that the firm committed fraud in diverting US$37 million in two hedge funds.

The case follows reported investor complaints and the arrest of former Northshore executive Kevin O. Kelley, who will be indicted on fraud charges early next month (see )

In the criminal complaint against Mr. Kelley, an individual who wrote a US$30,000 check for investment in E-Tell alleges that just US$10,000 showed up in a statement as actually invested in the company.

And although the criminal charge, brought by the U.S. Department of Justice, stems from Mr. Kelley’s work at the Stamford, Conn.-based advisory firm Acorn Research and Management, the SEC charges are similar in pattern to allegations of Northshore investing in illiquid securities of companies and making loans to entities in which Northshore and its principals have a stake.

“This action demonstrates that the commission will act quickly to preserve the assets of defrauded investors,” said Mark K. Schonfeld, director of the SEC’s Northeast regional office.

Besides freezing the assets in two hedge funds, Ardent Research Partners LP and Ardent Research Partners Ltd., investigators also are asking the court to appoint a temporary receiver for the assets.

The case took on a new wrinkle Tuesday (Feb. 15), when Northshore Asset Management filed for Chapter 11 protection in U.S. Bankruptcy Court in Chicago, a day before the SEC filed its complaint.

The bankruptcy filing followed a meeting with the SEC. The list of the top-20 Northshore creditors includes the manager of the hedge funds in question, Francis Saldutti, and the funds Northshore purchased from him in 2003: Ardent Research Partners LP and Ardent Research Partners Ltd.

The SEC said in its complaint that in the last two weeks commission staff visited Northshore’s offices and requested to speak with principals and made repeated attempts to attain basic information about the status of the Ardent Funds’ assets.

SEC officials say in their complaint, “Northshore failed to provide any substantive information beyond vague reassurances that funds were not misused.”

The SEC said its staff requested a delay on Northshore’s bankruptcy filing and that Department of Justice officials executed two search warrants for Northshore’s offices in New York and Connecticut.

For now investors wondering who is in charge of their money may look to Ira Bodenstein, who is the bankruptcy court-appointed trustee for the assets.

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


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