Hedge Fund Investors Suffer Huge Losses According to SEC
The Commission brought another fraud action centered on losses suffered by investors in two private hedge funds, the RAHFCO Funds L.P. and the RAHFCO Growth Fund LP. After raising over $23 million from about 100 investors between April 2007 and May 2011 the funds devolved into insolvency, leaving investors with an estimated $10 million in losses. SEC v. Hansen, Civil Action No. 12 CV 1403 (S.D.N.Y. Filed March 1, 2013).
Named as defendants in the action are Randal Hansen, the owner of Defendant RAHFCO Management Group, LLC and the general partner of the two funds; and Vincent Puma, the owner of defendant Hudson Capital Partners Corporation or HCP, a sub-adviser and portfolio manager for the two funds.
Randal Hansen interacted with the public and potential investors on behalf of the hedge funds. Prior to their collapse he made presentations to investors and potential investors, assuring then that an investment in the funds was safe. Investors were told that the hedge funds were pursuing a trading strategy in which they invested in options and futures on the S&P Index and equities. Only a portion of the investor funds were to be at risk and some portions were supposedly put in government securities or held in cash some investors were told. In fact the strategy was not followed and the representations were false, according to the complaint. Rather, investor funds were misused to pay other investors and for the benefit of the defendants.
Mr. Puma was instrumental in the continuation of the hedge funds and the overall scheme of the defendants. During the operation of the two hedge funds he is alleged to have provided a stream of information regarding the funds and their trading performance to Mr. Hansen or RAHFCO Management. He also provided that data to an accounting firm retained by the two hedge funds. That data was incorporated into monthly and quarterly reports furnished to investors. In fact Mr. Hansen’s stream of data was false, according to the complaint. For example, investors were told that from 2007 to early 2011 the two hedge funds earned over $9 million which would have represented a return of about 25%. In fact the two funds earned about $280,000, a return of less than 2%. The fictitious results were, however, incorporated in Forms 1099 and Schedules K-1.
During their four years of operation Mr. Hansen and RAHFCO Management received about $1.95 million in what were supposed to be investment profits and management fees. Mr. Puma and HCP received about $1.65 million in investor funds. While some investors received payments from the two hedge funds, many suffered losses.
The Commission’s complaint alleges violations of Securities Act Section 17(a), Exchange Act Sections 10(b) and 15(a) and Advisers Act Sections 206(1), 206(2) and 206(4). The case is in litigation. See also Lit. Rel. No. 22631 (March 4, 2013).