The SEC yesterday charged 2 SF-based investment adviser firms and 3 former associated persons - the CEO, general counsel, portfolio manager - with defrauding investors in a $100 million hedge fund that invested in subprime automobile loans.

Former CEO Benjamin Chui and former p'folio mgr Triffany Mok - who managed the American Pegasus Auto Loan Fund - together with former GC Charles Hall, Jr., engaged in self-dealing, misused client assets, and failed to disclose conflicts of interest.  The IA firms were:  American Peasus LDG, and American Pegasus Investment Management.

    Settlement:   All defendants agreed to pay $1.2 million in penalties and disgorgement, and be barred from the industry.  The individuals were fined a total of $350K.  Chui was barred for 5 years;  Mok for 1 year;  Hall for 3 years.

Chui also borrowed millions from the Auto Loan Fund to prop up other hedge funds he managed.  By late 2008, about 40% of the Auto Loan Fund’s assets consisted of “loans” to the fund managers’ related businesses - with fund investors being charged fees based on these undisclosed related-party payments.

    Wiped the Slate Clean.   Chui, Hall, and Mok then essentially wiped much of this debt to the fund off the books by selling assets to the fund at a 300% mark-up - an auto loan portfolio was purchased for $12mn in February 2009, and sold to the Fund the same day for more than $38mn.  The fraudulently inflated sale was used to erase money owed to the fund for the various related-party transactions.

SEC investigators:  Thomas Eme, Kristin Snyder, and Tracy Davis of the SF Regional Office, in coordination with an exam of the IA's by Barry Bunte, Steven Wolz, Erica Gould, and Matthew O’Toole.      [SEC Release 10-254, 12/21]