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Florida judge orders Nadel to face SEC charges in New York

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Federal judge Mark A.

Federal judge Mark A. Pizzo has signed an order to transfer the one-time fugitive hedge fund manager Arthur Nadel, of Sarasota, Florida to New York to face wire and securities fraud charges. Nadel disappeared on January 14 but turned himself in to the FBI about two weeks later.

On January 21 the Securities and Exchange Commission charged Nadel with fraud in connection with six hedge funds for which he acted as the principal investment advisor. According to the SEC’s complaint, Nadel provided false and misleading information for dissemination to investors about the funds’ historical returns and overstated the value of investments in the funds by around USD300m.

In fact, says the SEC, the funds appear to have total assets of less than USD1m. The complaint also alleges that Nadel recently transferred at least USD1.25m from two of the funds to secret bank accounts that he controlled.

The regulator also alleges that two entities with which Nadel was associated, Scoop Capital and Scoop Management, which provided investment advice to all of the funds, also engaged in fraud. The SEC has obtained an emergency court order freezing the defendants’ assets and appointing a receiver.

‘Investors should be able to rely on the truthfulness of an account statement and offering materials,’ says David Nelson, director of the SEC’s Miami regional office. ‘Mr Nadel’s alleged actions deceived investors, and we are seeking to hold him accountable for that misconduct.’

The six hedge funds and two other investment management companies are charged as relief defendants in the SEC’s complaint, which alleges that Nadel provided false and misleading information to the relief defendants for dissemination to investors through account statements and through offering memoranda.

For example, offering materials for three of the funds represented that they had some USD342m in assets as of November 30, 2008, when in fact they had a total of less than USD1m.


Offering materials for several of the funds represented monthly returns of around 11 to 12 per cent between January and November 2008, but at least three of the funds had negative returns during that period and another had returns that were positive but lower than reported.

One investor received an account statement for November indicating that her investment was valued at almost USD420,000, at a time when the entire fund had less than USD100,000.

The SEC filed its emergency action in the US District Court for the Middle District of Florida alleging that the defendants violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and seeking, among other things, injunctions, disgorgement plus prejudgment interest, and civil money penalties.

US district judge Richard A. Lazzara granted all of the emergency relief requested by the SEC, including a temporary restraining order, asset freeze, and other relief against Nadel.
Without admitting or denying the allegations of the complaint, Scoop Capital and Scoop Management consented to the entry of, among other things, preliminary injunctions, asset freezes, and the appointment of a receiver.

The SEC is seeking disgorgement plus prejudgment interest against each of the relief defendants, advisers Valhalla Management and Viking Management, and hedge funds Scoop Real Estate, Valhalla Investment Partners, Victory IRA Fund, Victory Fund, Viking IRA Fund, and Viking Fund. Without admitting or denying the allegations, they have consented to asset freezes and the appointment of a receiver.

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