If you have suffered losses investing with AlphaBridge Capital Management or in the AlphaBridge Fixed Income Master Fund, AlphaBridge Fixed Income Fund, or the AlphaBridge Fixed Income Partners, CALL 800-845-2181 for a FREE Consultation regarding your investment loss recovery options.
On July 1, 2015, the SEC initiated an administrative proceeding against Greenwich, Connecticut-based AlphaBridge Capital Management and its principals, Thomas T. Kutzen and Michael J. Carino for allegedly fraudulently inflating the prices of securities in hedge fund portfolios they managed.
According to the SEC, an revealed that 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. AlphaBridge and its owners Thomas T. Kutzen and Michael J. Carino agreed to pay $5 million combined to settle the charges. In connection with this action, the SEC also charged Richard Lawrence Evans (CRD# 1393693) who aided in the pricing scheme while working as a broker-dealer representative.
According to the SEC, some of the affected funds may include the AlphaBridge Fixed Income Master Fund, and its two feeder funds, the AlphaBridge Fixed Income Fund, and the AlphaBridge Fixed Income Partners. Upon information and belief, these funds holdings included securities known as interest-only and inverse interest only floaters, which are tranches of collateralized mortgage obligations (“CMOs”). Thes securities are unlisted, and thinly traded. As a result of this misconduct, in January 2014 these funds restated their NAV for 2012 by reducing the NAV by more than 65%, reducing the NAF from approximately $138 million to $48 million.
Securities Broker-Dealers Have to Ensure that Hedge Funds Are Suitable for Investors
Securities broker-dealers have a regulatory duty to ensure that any investments they recommend to customers are suitable for them. This is especially important for private placement securities offerings, such as those securities issued by the AlphaBridge Capital Management. In the context of a Regulation D offering, FINRA Rule 2111 (NASD Rule 2310) requires that securities broker-dealers to conduct a suitability analysis when recommending securities to both accredited and nonaccredited investors that will take into account the investors’ knowledge and experience. The brokerage firm must make reasonable efforts to gather and analyze information about the customer’s other holdings, financial situation and needs, tax status, investment objectives and such other information that would enable the firm to make its suitability determination.
In addition to ensuring that securities are suitable for its customers on an individual level, FINRA Rule 2111 (NASD Rule 2310) also states that a securities must have reasonable grounds to believe that a recommendation to purchase, sell or exchange a security is suitable for the customer. This “reasonable-basis” suitability requirement means that in the context of a Regulation D private placement securities offering, brokerage firms have a duty to conduct due diligence on:
-The issuer and its management;
-The business prospects of the issuer;
-The assets held by or to be acquired by the issuer;
-The claims being made; and
-The intended use of proceeds of the offering.
A securities broker-dealer hat lacks essential information about an issuer or its securities when it makes a recommendation, including recommendations of securities in Regulation D offerings, must disclose this fact as well as the risks that arise from its lack of information. In addition, a brokerage firm “may not rely blindly upon the issuer for information concerning a company,” nor may it rely on the information provided by the issuer and its counsel in lieu of conducting its own reasonable investigation.
AlphaBridge Capital Management Investors May Have Investment Loss Recovery Options through FINRA Arbitration
Fortunately for investors, they may be able to recover their investment losses through FINRA arbitration or securities litigation if the investments in Back9 Network were purchased from a brokerage firm and were unsuitable for them.
As a result of this misconduct, in January 2014 the NAV 2012 for AlphaBridge Fixed Income Master Fund, AlphaBridge Fixed Income Fund, and/or the AlphaBridge Fixed Income Partners allegedly was written down by more than 65%.
If you are have suffered losses in AlphaBridge Fixed Income Master Fund, AlphaBridge Fixed Income Fund, or AlphaBridge Fixed Income Partners, you may be able to recover your though FINRA arbitration or securities litigation. Please call Kons Law Offices at (312) 757-2272 for a FREE, NO OBLIGATION consultation to discuss your investment loss recovery options.
Kons Law Offices represents investors nationwide in securities arbitration and litigation matters. To learn more about the Firm’s securities litigation and FINRA arbitration practice, please visit www.investmentlossattorney.com.