Three executives at Connecticut hedge fund New Stream Capital have pleaded guilty in federal court to charges they misled clients in relation to Cayman Islands-based funds to keep the firm’s largest investor.
David Bryson, Richard Pereira and Bart Gutekunst pleaded guilty to conspiracy to commit wire fraud in connection with a scheme to secretly keep a fund open to stop its largest investor from cashing out, the U.S. Attorney’s Office in Connecticut said in a statement.
According to court documents and statements made in court, in November 2007, New Stream launched new feeder funds, one based in the US and a series of funds based in the Cayman Islands. New Stream also announced that its existing Bermuda Fund would be closing, and all foreign investors would have to move their investments into the Cayman Fund.
Rather than transfer into the new structure, New Stream’s largest investor placed a redemption on its whole investment in the Bermuda Fund in March 2008. The individuals revised the fund’s capital structure in an effort to stop the redemption, the government said.
“As part of the scheme, New Stream failed to inform investors who had transferred from the Bermuda Fund into the Cayman Fund that the Bermuda Fund was remaining open or that it was being given priority over the Cayman Fund. Moreover, New Stream continued to market to investors by concealing from them the magnitude of the actual pending redemptions and by using deceptive marketing materials that failed to disclose the existence of New Stream’s Bermuda Fund,” the U.S. Attorney’s Office in Connecticut said.
The three men, who were arrested in February 2013, face as long as five years in prison.
New Stream Capital, US