[ by Howard Haykin ]

The SEC today charged against a private fund manager and his Atlanta-based investment advisory firm who purportedly ran a “fund-of-funds” and allegedly slipped the fund into a Ponzi-like operation. The SEC seekis an emergency court order to freeze the assets of Angelo Alleca and Summit Wealth Management Inc. to prevent further investor losses which, to date are estimated at $17.

The Defendants.   Angelo Alleca, 42, a resident of Buiffalo, NY,, and Atlanta, GA, is the founder, president, COO and CCO of Summit Wealth.  Georgia.  Summit Wealth Management Inc. is an SEC RIA in Atlanta, GA, that Alleca operates and controls .  The firm claims to have more than 2,200 client accounts and AUM of $500 million.  Summit Investment Fund, LP, a private fund controlled by Alleca, purporedly operated as a fund-of-funds.  Asset Class Diversification Fund, LP is a limited partnership investment vehicle controlled by Alleca.  Private Credit Opportunities Fund, LLC is an investment vehicle also controlled by Alleca.

SEC Findings and Allegations.  Summit Wealth clients understood that their funds were to be invested in various funds.  Instead, Alleca traded stocks and lost significant amounts of money in and around 2006.  According to SEC Bruce Karpati,Chief of Enforcement's Asset Mgmt Division, "Rather than fess up about his trading losses, Alleca tried a cover up by creating new funds. Instead of winning back the money, he just compounded his fraud by suffering further losses."  [C-I Note:  Which regularly reinforces the notion that investors should cut their losses, rather than throw good money after bad.] 

After receiving a tip, the SEC initiated an examination of Summit Wealth and immediately noticed something was amiss at the firm.  The SEC examiners found, the following:

• Alleca and Summit Wealth Management offered and sold interests in Summit Fund, which they told their clients was operating as a fund-of-funds .
• While the fund-of-funds investment strategy is intended to diversify investor money and minimize exposure to risks. However, Alleca instead engaged in active securities trading with his clients’ money, and he incurred substantial losses. He concealed the Summit Fund trading losses from investors and provided them false account statements.

Trouble Begins with Redemption Requests. The latter 2nd and 3rd funds created, were intended to be used to raise money to cover up the losses of the original fund - for Summitt Wealth clients.  Those 2 funds were the Private Credit Opportunities Fund LLC and Asset Diversification Fund LP. 

Alleca’s plan was to cover up losses in the Summit Fund by illegally transferring profits from the new funds in a Ponzi-like fashion in order to meet earlier redemption requests.  Yet, the plan backfired when those successive funds also incurred trading losses. This forced Alleca to not only continue to issue false account statements to investors in Summit Fund, but to issue false satements to the newer investors in the later funds wihich also were taking market losses.  The SEC’s complaint charges Alleca, Summit Wealth Management, and the three funds with violations of the antifraud provisions of the federal securities laws.

SEC At;lanta Reional Office Staff Credits. Examinations by Edward McConnell, David McClellan, Claudette Williams, Satyan Singh, and Donna Esau in the SEC’s Atlanta Regional Office.  Subsequent investigation by the Atlanta office and the Asset Management Unit - particularly John Westrick and Stephen Donahue.

Sanctions. All accounts were frozen and are to be under the control of a receiver.  Meanwhile, the defendants need to provide an accounting of their funds before it can be determined how much money was lost by all investors.

For further details, go to:  [SEC PR 12-192, 9/19/12] and [SEC Complaint].