Connecticut Hedge Fund Executives Charged with Conspiracy, Securities Fraud, and Wire Fraud Offenses
|U.S. Department of Justice February 26, 2013|
NEW HAVEN, CT—A federal grand jury sitting in New Haven has returned a 19-count indictment charging three executives of New Stream Capital LLC, a Ridgefield, Connecticut hedge fund, with conspiracy, securities fraud, and wire fraud offenses, announced David B. Fein, U.S. Attorney for the District of Connecticut, and Kimberly K. Mertz, Special Agent in Charge of the New Haven Division of the FBI.
David Bryson, 44, of Ridgefield, Connecticut; Bart Gutekunst, 61, of Weston, Connecticut; and Richard Pereira, 40, of Ridgefield, surrendered this morning to the FBI in New Haven. Bryson and Gutekunst were managing partners and principals at New Stream Capital LLC, and Pereira was the chief financial officer. The defendants appeared before U.S. Magistrate Judge Donna F. Martinez in Hartford, Connecticut, and pleaded not guilty to the charges. Bryson and Gutekunst were released on $5 million bonds and Pereira was released on a $300,000 bond. The indictment, which was returned on February 22, 2013, was unsealed at that time.
“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 (U.S. Fund) and a series of funds based in the Cayman Islands (Cayman Fund). 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 that Bryson, Gutekunst, and Pereira 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, Bryson, Gutekunst, and Pereira had 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 FBI 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 U.S. Attorneys Liam Brennan and Michael S. McGarry.
The Connecticut Securities, Commodities and Investor Fraud Task Force investigates matters relating to insider trading, market manipulation, Ponzi schemes, investor fraud, financial statement fraud, violations of the Foreign Corrupt Practices Act, and embezzlement. The task force includes representatives from the U.S. Attorney’s Office; FBI; Internal Revenue Service-Criminal Investigation; U.S. Secret Service; U.S. Postal Inspection Service; U.S. Department of Justice’s Criminal Division, Fraud Section and Antitrust Division; U.S. Securities and Exchange Commission (SEC); U.S. Commodity Futures Trading Commission (CFTC); Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP); Office of the Chief State’s Attorney; State of Connecticut Department of Banking; Greenwich, Connecitcut Police Department; and Stamford, Connecticut Police Department.
Citizens are encouraged to report any financial fraud schemes by calling, toll-free, 855-236-9740, or by sending an e-mail to firstname.lastname@example.org.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory, and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state, and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants.
To report financial fraud crimes, and to learn more about the President’s Financial Fraud Enforcement Task Force, please visit www.stopfraud.gov.