SEC Moves to Shut Down Hedge Fund
Mon Aug 2, 2004
WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission said on Monday it took "emergency" legal action to shut down Fountainhead Asset Management, a Philadelphia-area hedge fund that the SEC accused of fraud.
U.S. District Court Judge Legrome Davis issued an order sought by the SEC to freeze the assets of the fund's two partners -- Anthony Postiglione and William Lennon -- and stop them from breaking securities fraud laws, the SEC said.
The judge appointed a receiver in the case and scheduled a hearing for Thursday on the SEC's motion seeking an injunction against the defendants, said the market-regulating SEC.
"It appears to be a very egregious and blatant fraud," said Amy Greer, trial counsel in the SEC's Philadelphia office.
Gregory Stagliano, an attorney for Postiglione, said the SEC's charges were "without merit."
"At the appropriate time, we will contest them vigorously. For now, we intend to cooperate with the court-appointed receiver to ensure that all of the investors' assets are protected," Stagliano said.
The action comes amid an SEC push to force hedge funds to register with the agency for the first time by providing information about themselves and opening their books to spot SEC inspections.
The SEC voted last month to formally propose a registration rule, which is supported by SEC Chairman William Donaldson and opposed by the hedge fund industry. In backing the measure, Donaldson has cited a growing caseload of hedge fund fraud.
The SEC said that Postiglione and Lennon raised about $5 million from at least 18 private investors from November 2001 to the present "through a series of fraudulent acts."
The partners "sent false quarterly statements and newsletters to investors, consistently overstating the fund's value and performance," the SEC said.
They also overstated Postiglione's personal investment in the fund and the fund's performance, the agency said.
In addition, it said Postiglione and Lennon excessively traded fund securities accounts "for the sole purpose of generating soft dollar credits, which they then withdrew as cash and used for, among other things, their own personal living expenses."
Stagliano said, "The SEC complaint grossly understates the current value of assets held by the fund ... Allegations in the complaint that Mr. Postiglione benefited financially to the detriment of his clients are simply untrue.
"Many of the investors were friends and family members, including Mr. Postiglione's own mother and father. To suggest that he would take advantage of these people is not only meritless, but very unfortunate."
The SEC's action was filed on July 30 in the U.S. District Court for the Eastern District of Pennsylvania. Fountainhead is located in Wayne, Pennsylvania, in the Philadelphia suburbs.
The SEC alleged that Postiglione and Lennon misappropriated several hundred thousand dollars of fund assets for their personal use. As of the date of filing, investor assets in the fund totaled about $1.7 million, it said.
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