The Morning Brief: SEC Charges Hedge Fund in Valuation Scheme

A hedge fund and its two owners agreed to pay a total of $5 million to settle Securities and Exchange Commission charges that they inflated the value of the fund’s assets in order to boost its fees. The regulator alleges that Greenwich, Connecticut-based AlphaBridge Capital Management and owners Thomas Kutzen and Michael Carino told investors and the fund’s auditor that it obtained price quotes from broker-dealers for certain thinly-traded residential mortgage-backed securities. However, in reality AlphaBridge created the valuations and gave them to broker-dealers “to pass off as their own,” the SEC alleges. As a result, the funds paid higher management and performance fees to AlphaBridge, according to the SEC.
The regulator also charged Richard Evans with helping out the scheme while working as a broker-dealer representative. Under a settlement, Evans agreed to pay a $15,000 penalty and be barred from working in the securities industry for at least one year. As part of the deal, Evans neither admitted nor denied the findings. The SEC also claims AlphaBridge misled the funds’ auditor by suggesting that Evans acted independently. However, in fact Carino developed the data, the regulator charges.
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Jeffrey Ubben’s ValueAct Capital said in a regulatory filing that it supports insurance broker Willis Group Holdings’ acquisition of employee benefits and human resources consulting firm Towers Watson for $8.7 billion. The San Francisco investment firm said it will not take steps to block the merger.In a separate filing, ValueAct said it sold more than 300,000 shares of Adobe Systems, reducing its stake to about 15.7 million shares. The software maker — a long-time holding for ValueAct — was one of the three biggest sources of gains for the hedge fund firm last year. At the end of the first quarter, both Adobe and Willis were top-10 holdings for the activist firm, which generally takes a long-term approach to its investments.
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Thomas Sandell’s Sandell Asset Management boosted its stake in Bob Evans Farms to more than 2.1 million shares, or 9.6 percent of the total outstanding. Last August Sandell won five seats on the board of the restaurant and packaged foods company in a high-profile proxy fight. Sandell has been pushing the company to separate its two main businesses. In March, the stock collapsed after the company reported disappointing quarterly earnings and announced it would not sell or spin-off its BEF Foods business segment. ___
William Ackman’s Pershing Square Capital Management had its stake in Platform Specialty Products Corp. reduced to 20.3 percent of the total outstanding. However, the New York activist firm did not sell any shares. Rather, the producer of specialty chemical products simply issued additional shares, so Pershing Square’s ownership position was mathematically reduced.