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|4th Apr 2008||Fraud Investigation||SEC sues UK hedge fund and boss|
|The US Securities and Exchange Commission (SEC) says it is suing UK hedge fund Pentagon Capital Management and its chief executive, Lewis Chester.
The watchdog alleges the fund and Mr Chester have schemed to defraud mutual funds and shareholders in the US.
London-based Pentagon Capital said last week it was winding down two funds because it expected the SEC to file civil complaints against Mr Chester.
Pentagon and Mr Chester have said they would vigorously fight the SEC action.
According to its court complaint, the SEC says Pentagon - which manages $2bn in assets - and Mr Chester defrauded mutual funds through late trading and deceptive market timing.
From summer 1999 to autumn 2003, "PCM actively traded US mutual funds through Pentagon Fund's accounts at numerous broker-dealers in the United States," the SEC said.
The watchdog alleges PCM gained an improper, illegal trading advantage by being able to make trading decisions concerning which US mutual fund shares to buy, redeem or exchange after 1600 US Eastern Time.
Late trading means placing orders in US mutual fund shares after the close of trading at 1600, when the value of each fund's holdings is calculated daily.
The defendants' legal representative, Frank Razzano, said: "We believe that we have substantial legal and factual defences to the complaint.
"We look forward to proving at a court of law the innocence of the clients."
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