GREENWICH, Conn. — The owners of a Greenwich-based hedge fund sanctioned by the Securities and Exchange Commission amid charges of fraudulently inflating the prices of securities in portfolios they managed agreed to pay a combined $5 million fine to settle the charges, the SEC said in a statement.
Greenwich's AlphaBridge Capital Management and its two owners, Thomas Kutzen of Riverside and Michael Carino of Greenwich, agreed to pay the fine and and the firm will then close down the funds, the SEC said.
“The integrity of the portfolio valuation process is critical to fund investors, especially when it involves illiquid securities,” said Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “AlphaBridge claimed to use market-grounded price quotes from brokers when in fact it relied on its own rosy view of market conditions to price its portfolio.”
AlphaBridge and Kutzen were censured by the SEC and Carino is barred from working in the securities industry for at least three years. AlphaBridge will return more than $4 million to investors and pay nearly $1 million in penalties to compensate for the funds overpayment of management and performance fees. The firm will also close down the funds, according to the SEC.
AlphaBridge has been registered with the SEC as an investment adviser since November 2000. Kutzen is the founder, majority owner, managing member, president, CEO and CIO. Carino is the fund’s chief compliance officer and minority owner.
An SEC investigation found that AlphaBridge Capital Management told investors and its auditor that it obtained independent price quotes from broker-dealers for certain unlisted, thinly traded residential mortgage-backed securities. AlphaBridge instead gave internally derived valuations to broker-dealer representatives to pass off as their own. The inflated valuation of these assets caused the funds to pay higher management and performance fees to AlphaBridge.
The SEC also charged Richard L. Evans of Houston for assisting in the pricing scheme. Evans, who cooperated with the investigation, agreed to pay a $15,000 penalty and be barred from working in the securities industry for at least one year to settle charges that he aided and abetted and caused violations by AlphaBridge. Evans neither admitted nor denied the findings.
The SEC’s order finds that AlphaBridge violated and Kutzen and Carino aided and abetted and caused violations of the antifraud and other provisions of the Investment Advisers Act of 1940. AlphaBridge, Kutzen, and Carino consented to the entry of the SEC’s order without admitting or denying the findings.
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