WALTHAM, Mass. (HedgeWorld.com)–Mark R. Conway, a partner at Groundswell Partners, went to great lengths to communicate his guilt in a fraud case but failed to turn himself in to authorities last month, regulatory authorities allege.

According to a complaint filed in the U.S. District Court in Massachusetts by the Securities and Exchange Commission, Mr. Conway admitted in a tape-recorded discussion with his business partner, Aaron Behle, that he lost a large sum of investors’ money and has been trying to cover up the losses for the last five years.

Mr. Conway altered documents for Groundswell Capital LP to show a total fund size of US$43 million in order to collect advisory fees. As in other recent hedge fund fraud cases, Mr. Conway allegedly created a fictitious auditor and audit reports for the fund, and according to the SEC he has admitted to taking such actions to dupe investors.

The group of approximately 75 investors included friends and family of Mr. Conway and collectively invested US$14 million in Groundswell Capital LP. The fund was launched in April 2000. After taking a large position in a single stock, Mr. Conway said that he doctored the fund’s financial statements, profit and loss spreadsheets and account statements to conceal the subsequent failure of his investment.

After the alleged Oct. 26 taped telephone conversation with Mr. Behle, Mr. Conway called the SEC’s Boston office to turn himself in but failed to appear for a scheduled meeting on Oct. 28 with SEC officials. As a result, the SEC has taken action to freeze the assets of Mr. Conway and his firm.

The temporary restraining order and the asset freeze were continued at a Nov. 9 hearing, but the SEC is working with Mr. Conway’s attorney to set up a longer-term arrangement on assets that will be in place until the case is settled, said Silvestre A. Fontes, senior trial counsel at the SEC’s Boston office.

Separately, it’s too early to say whether Mr. Behle will face charges or what criminal charges may be filed against Mr. Conway. For now, Mr. Behle has been cooperative with authorities and has turned over his recorded conversation with Mr. Conway, Mr. Fontes said. Mr. Behle, who has a 50% stake in the management firm Groundswell Partners LLC, is said to have taped the discussion after becoming suspicious of Mr. Conway.

Contact Bob Keane with questions or comments at bkeane@investmentadvisor.com.