In the latest case demonstrating the US Securities and Exchange Commission’s resolve on disclosures, a Minneapolis-based hedge fund manager was charged with funnelling fund money set aside for research into insiders’ pockets.
Steven Markusen, the firm’s owner, allegedly diverted the cash to one of his investor relations staff members as payment to an “independent consultant” for research that was never completed or properly disclosed to investors.
According to the SEC’s complaint, the scheme enabled Markusen to secretly pay the employee's salary with fund soft dollars rather than out of Archer’s coffers. Markusen disguised the employee's $10,000 monthly salary payments as research fees because under the governing documents of the hedge funds they managed and SEC rules, Archer employees could not draw a salary from fund assets or receive fund soft dollars for non-research assistance. In all, the defendants unjustly enriched themselves by more than $1 million, according to the SEC.
Disclosures have become a focal point for SEC inspectors examining a range of fund expenses, according to market sources. In particular, undisclosed payments that provide registered advisors any type of benefit will receive enhanced scrutiny, warn compliance consultants.