[ by Howard Haykin ]

The SEC announced on Thursday that Bruce Karpati, chief of the Enforcement Division’s Asset Management Unit, is leaving for the private sector.  He's put in more than a dozen years of federal service.  Deputy chiefs Julie Riewe and Marshall Sprung will serve as Acting Heads of the Unit until new leadership is named.

Mr. Karpati, 43, joined the SEC’s New York Regional Office as an enforcement staff attorney in 2000, and was promoted to branch chief in 2002. 

• He became Assistant Regional Director in 2005. 
• In 2007, he founded the SEC’s Hedge Fund Working Group, a cross-office initiative to combat securities fraud in the hedge fund space.
• Since January 2010, when the Asset Management Enforcement Unit was formed, Mr. Karpati has run that unit, overseeing a staff of more than 75 attorneys, industry experts, and other professionals responsible for conducting investigations into investment advisers, investment companies, and private funds. 

Mr. Karpati was instrumental in establishing the Asset Management Unit, formulating its strategic and operating plans, setting unit priorities, hiring industry experts, and building the unit’s infrastructure. A hallmark of Mr. Karpati’s tenure was very close coordination with other SEC divisions and offices such as the National Exam Program, the Division of Investment Management, and the Division of Risk, Strategy and Financial Innovation. These collaborations resulted in examination sweeps, rulemakings, and more effective detection of emerging risks.

Of the many enforcement actions handled under Mr. Karpati's leadership, here's a sampling where the SEC successfully charged : 

• a major quant investment adviser ("IA") with misleading investors about the impact of a software error.

• a former $1 billion hedge fund ("HF") advisory firm and 2 executives with scheming to overvalue assets under management and exaggerate the reported returns of the hedge funds they managed.

• a NY-based HF manager and his firm with misappropriating client assets and secretly granting favorable redemption and liquidity rights to certain strategically important investors at the expense of other investors.

• a HF adviser and separately other HF managers in cases where they misrepresented they had “skin in the game” when in fact they were not personally investing their money in the funds side-by-side with investors.

• a Bay Area HF manager with concealing investment proceeds in a side pocket to hide profits owed investors and, in a separate case, charged Georgia-based HF managers with overvaluing illiquid assets in a side pocket so they could extract excessive management fees based on those asset values.

• multiple HF managers with fraud in an inquiry targeting suspicious investment returns.

• a Malaysia-based IA and a Wall Street firm involved in an illegal mutual fund fee arrangement that repeatedly charged a fund and its investors for advisory services they weren’t actually receiving from a 3rd party. 

• a Scotland-based fund mgmt group for fraudulently using one of its U.S. fund clients to rescue another client, a China-focused HF struggling in the midst of the global financial crisis.

• 2 NY-based PE fund advisers with misleading investors about the valuation policies and performance of a private equity fund they managed.

• the gatekeepers of 2 mutual fund trusts for inaccurate disclosures about decisions made on behalf of shareholders.

Mr. Karpati and several colleagues from the Asset Management Unit and other offices received the SEC Chairman’s Award for Excellence in 2012 for their work on the Aberrational Performance Inquiry, which proactively uses performance data to uncover various types of investment fraud by hedge fund managers.

Prior to his arrival at the SEC, Mr. Karpati spent four years in private practice at a large national law firm.  Mr. Karpati graduated from Tufts and U. of Buffalo Law School.  

For further details, go to:   [ SEC Press Release 13-85, 5/9/13 ].