David B. Fein, United States Attorney for the District of Connecticut, and Kimberly K. Mertz, Special Agent in Charge of the New Haven Division of the Federal Bureau of Investigation, announced Tuesday a federal grand jury sitting in New Haven returned a 19-count indictment charging three executives of New Stream Capital, LLC, a Ridgefield-based hedge fund, with conspiracy, securities fraud and wire fraud offenses.
The SEC has also filed a civil complaint against the men.
The feds say that New Stream Cap Managing Partners David Bryson, 44 of Ridgefield and Bart Gutekunst, 61 of Weston, with New Stream CFO Richard Pereira, 40 of Ridgefield, surrendered in the morning to the FBI in New Haven.
The defendants appeared before U.S. Magistrate Judge Donna F. Martinez in Hartford and pleaded not guilty to the charges.
The trio is charged with lying to investors about the status of its offshore funds.
Bryson and Gutekunst were released on $5 million bonds and Pereira on a $300,000 bond.
“As alleged, fearing the loss of their fund’s largest investor, these defendants orchestrated a scheme to deceive investors in order to obtain and maintain investments,” stated U.S. Attorney Fein. “The U.S. Attorney’s Office and our many partners on the Connecticut Securities, Commodities and Investor Fraud Task Force are committed to protecting investors and the integrity of American capital markets.”
“It goes without saying that investing carries certain risks,” stated FBI Special Agent in Charge Mertz. “Those risks, however, should not include any chance that hedge fund managers or other investment professionals are lying to or deceiving their investors about the current state of investments. Investors have a right to full disclosure. Today’s arrests underscore the FBI’s continuing commitment to investigate those who provide material misrepresentations to investors.”
According to the indictment and statements made in court, in November 2007, New Stream launched new feeder funds, one based in the United States and a series of funds based in the Cayman Islands. New Stream also announced that its existing Bermuda Fund would be closing, and all foreign investors would have to move their investments into the Cayman Fund. Rather than transfer into the new structure, New Stream’s largest investor placed a redemption on its whole investment in the Bermuda Fund in March 2008.
At risk of losing their largest investor, it is alleged the three men set in motion a scheme to secretly keep the Bermuda Fund open and give priority to Bermuda Fund investors in an effort to reverse the redemption. As part of the scheme, New Stream staff secretly reorganize the fund structure so as to effectuate the priority change.
The indictment further alleges that New Stream failed to inform investors who had transferred from the Bermuda Fund into the Cayman Fund that the Bermuda Fund was remaining open or that it was being given priority over the Cayman Fund. Moreover, New Stream continued to market New Stream to investors by concealing from them the magnitude of the actual pending redemptions and by using deceptive marketing materials that failed to disclose the existence of New Stream’s Bermuda Fund.
Each of the defendants is charged with one count of conspiracy, 10 counts of securities fraud and eight counts of wire fraud. The conspiracy charge carries a maximum term of imprisonment of five years, and the securities fraud and wire fraud charges carry a maximum term of imprisonment of 20 years on each count.
This matter is being investigated by the Federal Bureau of Investigation and the U.S. Department of Labor, Office of Inspector General, with the assistance of the Securities and Exchange Commission. The case is being prosecuted by Assistant United States Attorneys Liam Brennan and Michael S. McGarry.