PROMINENT LATIN FOCUSED FUND ADVISER SETTLES WITH SEC
The Commission filed a settled administrative proceeding with a prominent Latin American focused hedge fund adviser, In the Matter of Quantek Asset Management, LLC, Adm. Proc. File No. 3-14893 (May 29, 2012). The proceeding names as Respondents Quantek Assent Management, LLC, Bulltick Capital Markets Holdings, L.P., Javier Guerra and Ralph Patino. Quantek, based in Miami, Florida, is a registered investment adviser that was a wholly owned subsidiary of Bulltick, a Scottish limited partnership founded by Mr. Guerra and others. Mr. Guerra is the lead principal of Quantek and the portfolio manager for the Opportunity Funds, a group of hedge funds created in July 2005 whose adviser is Quantek. Mr. Patino was Quanteck’s director of operations.
The Opportunity Funds use an asset based lending strategy which focuses on industrial and real estate ventures in Latin America. The Funds grew quickly. By the middle of 2008 they had over $1 billion in assets and seventy investors, many of whom were institutional. Respondents Quantek and Bulltick did not install and implement adequate compliance procedures at Quantek to keep pace with its rapid growth, according to the Order. The compliance personal assigned lacked experience and training concerning investment advisers.
The Order alleges three violations. First, from December 2006 through June 2008 Quantek falsely represented to certain prospective investors that its principals had invested their own money in the Opportunity Funds. The representations were made in due diligence questionnaire responses and side letter agreement with institutional investors. The statements were important to many fund investors since having “skin in the game” is viewed as aligning the interests of investors and management.
Second, from 2007 through 2008 Quantek misled investors about its investment process. The strategy used by the Funds meant that many of the investments were complex and illiquid. Investors carefully evaluated the process followed. It was represented to contain the following steps:
- Approval of each investment was made by a committee;
- The committee reviewed formal memoranda explaining the proposed investment; and
- The committee members documented their approval by signing the memoranda, according to representations made to certain large institutional investors.
In fact memoranda were not prepared in many instances. In 2007 when a large institutional investor requested copies of the memoranda, Quantek responded by creating and backdating the materials which were then given to investors.
Finally, from 2007 through 2010 investors were furnished with inaccurate information about certain related party transactions. The Opportunity Funds permitted related party transactions with Quantek’s parent company. In 2006 and 2007 the funds entered into related party loans to an affiliate of their portfolio manager. The loans were not properly documented. Later Quantek and Bulltick employees prepared and backdated the papers. Investment memoranda were prepared as if they were available before the loans were made. The Order alleges violations of Securities Act Sections 17(a)(2) and (3) and Advisers Act Section 206(4) and the pertinent rules.
To resolve the proceeding each Respondent consented to the entry of cease and desisit orders. The order as to Quantek and Messrs. Guerra and Patino is based on the Sections cited in the Order. The order as to Bulltick is based on the Advisers Act Section and the related Rules cited in the Order. Respondents Quantek and Bulltick were also censured. Respondents Quantek and Guerra also agreed to jointly pay over $2.2 million in disgorgement and prejudgment interest along with penalties of, respectively, $375,000 and $150,000. Respondent Bulltick agreed to pay a penalty of $300,000 while Respondent Patio will pay a penalty of $50,000. Finally, Messrs. Guerra and Patino consented to securities industry bars of, respectively, five years and one year.
ABA Program: The New Era of FCPA Enforcement and the Collapse of the Africa Sting Cases: Time to Reevaluate? Tuesday June 5, 2012, 12:00 PM to 1:30 PM EST, Live in Washington, DC and webcast.
Moderators: Thomas O. Gorman, Partner, Dorsey & Whitney LLP, Washington, D.C. and Frank C. Razzano, Partner, Pepper Hamilton, LLP, Washington, D.C.
Panel: John D. Buretta, Deputy Asst. AG, Criminal Division, DOJ, Washington, D.C.; Charles E. Cain, Deputy Chief FCPA Unit, SEC, Washington, D.C.; France Chain, Senior Legal Analyst, Anti-Corruption Division, OECD, Paris, France; Prof. Mike Koehler, Butler University, Indianapolis, Ind.; Hon. Stanley Sporkin, Washington, D.C.; Greg D. Andres, Partner, Davis Polk, New York, New York; Eric Bruce, Partner, Kobre & Kim, New York, New York. Live Presentation from Washington, DC.
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