The Securities and Exchange Commission (SEC) ordered a Florida-based fund administrator to pay more than $122,000 to settle allegations it missed red flags regarding a $39 million fraud.
Theorem Fund Services agreed to pay a $100,000 penalty, disgorgement of $18,000, and prejudgment interest of $4,271, the SEC announced in a press release Monday. The firm consented to cease and desist from further violations.
The details: From approximately January 2018 through March 2019, Theorem served as the administrator for a Detroit-based hedge fund adviser shut down by the SEC in May 2022 for running a “Ponzi-like” scheme that included the misappropriation and misuse of investors’ funds.
As administrator, Theorem was responsible for calculating the fund’s monthly net asset value, performance statistics, and allocating gross profit to investors, according to the SEC’s order.
To facilitate their alleged scheme, the advisers made repeated materially false and misleading statements about the fund’s performance, “including in monthly investor capital account statements … that were distributed by [Theorem] through its online portal,” per the order.
When the fund suffered significant losses during the relevant period, Theorem recognized them as an expense reimbursement as a receivable due from the fund, resulting in no decrease to the fund’s monthly net asset value, the SEC alleged. This decision was allegedly dictated by the advisers.
Theorem recorded this asset without evaluating whether it was appropriate and despite the existence of red flags, the SEC said.
Theorem had “minimal policies or procedures regarding onboarding new clients,” the order stated. During the onboarding process, it failed to confirm if the fund fulfilled its responsibility to appoint an independent auditor, the SEC alleged. It wasn’t until the end of 2018 that Theorem attempted to confirm this stipulation.
Theorem did not respond to a request for comment. The firm agreed to the settlement without admitting or denying the SEC’s findings.