Defrauded Manager Settles with SEC

LAKE FOREST, Ill. (HedgeWorld.com)–After becoming a victim of fraud in her own right, Sharon E. Vaughn has settled with the Securities and Exchange Commission over charges that she lost control of her hedge fund investor’s assets and misled investors.

Without admitting or denying guilt, Ms. Vaughn, president and sole owner of Directors Financial Group, agreed to be barred from associating with any investment adviser, broker or dealer. DFG, manager of the Directors Performance Fund LLC, a hedge fund formed in 2002, had its investment adviser registration revoked on June 6, according to an administrative proceedings document released by the SEC this week.

At the hedge fund’s height it had raised $28 million from 29 investors.

Ms. Vaughn was allegedly defrauded by three men who promoted a risk-free investment that could yield impressive returns, according to the SEC. After investing $25 million of her fund’s assets with Richard E. Warren, David L. Myatt and Frank L. Cowles, the cash was transferred several times, tipping off regulators to what’s referred to as a “prime bank” trading scheme, according to the SEC’s original complaint.

The three men were arrested with Ms. Vaughn’s help in November 2005 and charged with wire fraud by the U.S. Attorney’s office.