SEC Moves Against Tennessee Hedge Fund Manager

KNOXVILLE, Tenn. (HedgeWorld.com)–The Securities and Exchange Commission moved last week to halt the operation of a convertible bond arbitrage hedge fund run by Tenet Asset Management LLC, claiming the fund’s principal, Jon E. Hankins, had concealed heavy losses from investors and lied to prospective investors about the fund’s performance.

A judge in the case granted SEC officials a temporary restraining order that included the appointment of a temporary receiver over Tenet and its Convertible Opportunities Fund LP.

In their complaint, SEC officials alleged that Mr. Hankins lied in meetings with investors about the fund’s performance and its investment strategy. They also alleged that Mr. Hankins sent out marketing materials that falsely reflected a 32% gain for the Convertible Opportunities Fund during the period from April 2004 through December 2004. Audited financial statements obtained by the SEC show the fund actually lost 24% during that period.

Additionally, SEC officials said Mr. Hankins sent altered audited financial statements to at least one fund investor that concealed a US$1.4 million loss for the fund in 2004 and that falsely claimed the fund had US$31.2 million in assets when in reality it had US$4.2 million.

The SEC, in its complaint, alleged that Mr. Hankins requested that the fund’s prime broker redeem the funds of one concerned investor at a level that was “inconsistent with the losses incurred in the fund’s accounts,” according to a statement from the SEC. The idea, apparently, was to make the investor believe based on the amount of the redemption that the fund had performed better than it actually had.