U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21787 / December 21, 2010
Securities and Exchange Commission v. Robert L. Buckhannon, Terry D. Rawstern. Dale E. St. Jean, Gregory D Tindall, Richard D. Mittasch, Christopher T. Paganes, Glenn M. Barikmo and Imperium Investment Advisors, LLC, Civil Action No. 8:10-cv-2859-T27-MAP (M.D. Fla. filed December 21, 2010)
SEC CHARGES HEDGE FUND MANAGERS AND TRUSTEES WITH OPERATING MULTI-MILLION DOLLAR OFFERING FRAUD
The Securities and Exchange Commission announced today that it filed a civil injunctive action against Robert Buckhannon, Terry Rawstern, Dale St. Jean and Gregory Tindall (the "Managing Members"), the four managing members of two now-defunct hedge funds, Arcanum Equity Fund, LLC and Vestium Equity Fund, LLC (the "Funds"), through which they conducted an offering fraud that raised $34 million from 101 investors throughout the U.S. and Canada. The SEC also charged Imperium Investment Advisors, LLC, a registered investment adviser which served as trustee for Vestium Equity Fund, and its three principals, Richard Mittasch, Christopher Paganes and Glenn Barikmo, for their roles in the scheme.
The SEC's complaint, filed in the U.S. District Court for the Middle District of Florida, alleges that from April 2008 through April 2010, the Managing Members raised funds promising investors that they would generate substantial returns through conservative investments in high-grade debt instruments and, in some cases, limited physical commodities transactions. Additionally, the offering materials and prospectus for Vestium Equity Funds further assured investors that Imperium would safeguard their funds from impermissible uses. Contrary to these assurances, however, the defendants disregarded the Funds' respective investment parameters and used investor funds for illiquid private investments and loans to affiliate entities. Additionally, although the Funds incurred investment losses of at least $8.1 million, the Managing Members disseminated monthly statements falsely depicting consistent profits and paid at least $6 million to investors in alleged profits. The Managing members further paid themselves over $1.3 million in compensation that was improperly based on inflated asset values and fictitious profits. The SEC's complaint further alleges that Buckhannon, Mittasch, Paganes and Barikmo collectively misappropriated at least $734,000 of investor funds to themselves and others.
The SEC's complaint alleges that the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, that Buckhannon and Rawstern violated Section 17(a) of the Securities Act of 1933, and that defendants Buckhannon, Rawstern, St. Jean and Tindall also violated, and Mittasch, Paganes, Barikmo and Imperium aided and abetted violations of, Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The SEC's complaint seeks permanent injunctive relief, disgorgement and prejudgment interest thereon, and civil penalties.
Without admitting or denying the SEC's allegations, Buckhannon settled the Commission's action by consenting to a final judgment providing for permanent injunctive relief, disgorgement with prejudgment interest in the amount of $1,239,176 and a civil penalty in the amount of $130,000. Rawstern also partially settled the Commission's action by consenting to the entry of a judgment providing for injunctive relief and for the imposition of disgorgement and a civil penalty, in amounts to be determined at a later date upon the Commission's motion. The matter remains in litigation with respect to the remaining defendants.
The Commission acknowledges the assistance and cooperation of the Alberta Securities Commission in this matter.