The SEC’s enforcement division continues to drop the hammer on hedge funds, particularly those that overstate AUM and inflate reported returns.
New Jersey-based hedge fund Yorkville Advisors is a recent example. According to the SEC, they reported false and inflated values for certain investment managed by the hedge fund in order to increase the funds’ AUM and to maintain a positive year-end performance.
The case is noteworthy because it is one of several recent enforcement actions linked to the SEC’s Aberrational Performance Inquiry. The new initiative uses proprietary risk analytics to identify hedge funds with suspicious returns. Performance that is flagged as inconsistent with a fund’s investment strategy or other benchmarks forms a basis for further investigation and scrutiny.
“The analytics put Yorkville front and center on our radar screen,” said Bruce Karpati, Chief of the SEC Enforcement Division’s Asset Management Unit. “When we looked further we found lies to investors and the firm’s auditors as well as a scheme to inflate fees by grossly overvaluing fund assets. We will continue to pursue hedge fund managers whose success is based on fiction rather than fact.”
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