SAN FRANCISCO (HedgeWorld.com)–The in-house legal counsel to Global Crown Capital LLC is publicly denying the Securities and Exchange Commission’s fraud allegations against Global Crown’s Cogent Capital Management hedge fund.
Yesterday, the SEC made public its cease-and-desist order proceedings against the hedge fund and its owners, charging that the hedge fund had a redemption reserve that was fraudulently used to boost returns.
Henry Wolfgang Carter, general counsel to Global Crown, said officials had yet to be served with the SEC’s order. “If there wasn’t any press about it, we wouldn’t have known about it,” he said.
The SEC’s investigation of the Cogent Capital Management Fund began in 2003. According to Mr. Carter, who joined Global Crown this past January, SEC officials agreed to drop the investigation if Global Crown would agree that the redemption reserve account was fraudulent.
In its March 30 order, the SEC accused the managers of Cogent Capital of hiding a 20% decline in the creation of a “redemption reserve” totaling $228,000. The SEC says that the hedge fund totaled $30 million, a number which Mr. Carter disputes. He said the fund only had 11 investors and totaled $2 million at its largest. As of early 2005, when the fund was being wound down, it totaled only $450,000.
“Specifically, we reject the SEC’s characterization that the manner in which a “redemption reserve” was utilized was fraudulent,” said Global Crown officials in a statement. They say it was a voluntary infusion of capital based on its predetermined redemption reserves.
Mr. Carter said the disclosure of the account to investors is what’s really at issue.
The fund’s administrator and accountants were consulted and consented to the use of the redemption reserve, Mr. Carter said. According to the firm, BDO Seidman LLP is its accountant and Altschuler, Melvoin & Glasser was the hedge fund’s auditor.
“Cogent investors were not harmed, as they were able to make redemptions based on the capital balances that were reported to them,” the firm stated in a press release.
Global Crown has retained Proskauer Rose LLP as its counsel in the case.
Calls to the SEC were referred to Marc Fagel, associate district administrator for the SEC’s San Francisco Office. At press time he was not available for comment.
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