[ by Howard Haykin ]

Regulator Reportedly Investigating Money Manager’s Trading Practices.

An L.A. money manager who's been accused of improper trading practices, according to 2 people with direct knowledge of the case, say the SEC is conducting an investigation.  Reports of the investigation came as Peter Eichler Jr., 54, was filing for bankruptcy protection for his management firm, Aletheia Research and Management.  The firm recently has been hit by a wave of client withdrawals amid weak performance and regulatory issues.

About Aletheia.   The firm primarily manages stock portfolios for pension funds, foundations and wealthy families.  Its strong investment performance - Aletheia's flagship growth strategy has substantially outperformed the S&P's 500-stock index over the last decade - has attracted marquee clients, including Michigan's state pension fund and the Ewing Marion Kauffman Foundation in Kansas City, MO.  The brokerage units of Goldman Sachs and Morgan Stanley had also invested clients' money in Aletheia's funds.  

The firm also has drawn attention over its role in a number of shareholder fights, including a prominent battle with Barnes & Noble that it waged alongside the investor Ronald W. Burkle.  Their big stake in Barnes & Noble led to litigation over whether Mr. Burkle and Mr. Eichler were improperly colluding to accumulate a controlling position in the company.  During the case, a Delaware judge mocked Mr. Eichler for repeatedly following Mr. Burkle on his investments. The judge wrote that the chance for Mr. Eichler to discuss stocks with Mr. Burkle was like an aspiring songwriter "getting to trade licks and lyrics with Bob Dylan."

Aletheia, named after the Greek word for "truth and disclosure," had at its peak about $8 billion under management.  The firm was founded in 1997 by Mr. Eichler, who spent a decade at Bear Stearns before starting his own firm.  He's a 3rd-generation L.A. money manager. His grandfather started Bateman Eichler & Company in 1931, which became one of the larger West Coast brokerage firms before it was sold to Kemper Securities in 1982.  He is also the grandson of Henri de La Chapelle, an original partner of Paine Webber Jackson & Curtis.

Scope of SEC Investigation.   Among the issues and accusations the SEC is said to be looking into, are:

• trading misconduct.
• possible manipulation of client accounts through late allocations of trades. 
• movement of money-losing trades from client accounts into Aletheia's accounts.

The investigation is just the latest in a series of setbacks for the firm. Here's a brief chronology:

• In June 2011, Aletheia paid $400K to settle SEC civil charges related to its maintaining deficient books and records.

• Around that time, former federal prosecutor, Steve Olson, was named as its president;  he left within months.

• Peter Eichler was sued in 2010 by one of the firm's senior executives, Roger Peikin, for wrongful termination.  Mr. Eichler specifically was accused of misconduct related to "trading practices, general disregard for regulatory controls, wanton expenditure of corporate assets for Eichler's personal benefit, and overall neglect of the business side of Aletheia's operations."

• In 2009, Proctor Investment Managers, a NY-based PE firm, and Aletheia filed lawsuits against each other over terms of a deal in which Proctor took a 10% stake in Aletheia.

While Aletheia still managed $1.8bn as of 6/30/12, it notes in its bankruptcy filing that it owes substantial amounts to creditors:

• Proctor Investment, reportedly owed $16 million.
• California state franchise tax board, reportedly owed $2.5 million;
• law firm, Bingham McCutchen, which has a claim for $730K.

Details of Mr. Peikin's Lawsuit.   The suit highlighted Mr. Eichler's lavish lifestyle and his management of the firm, referring to:

• use of private jets and $18,000-a-night hotel suites;
• $7 million spent renovating the firm's offices at 100 Wilshire Boulevard, a prestigious building with sweeping views of the Pacific Ocean.
• Eichler's depiction as a tyrannical boss who ruled Aletheia "with an iron fist."

"By hijacking control of Aletheia's board and eliminating Peikin from all management decisions, Eichler has successfully rid himself of all internal controls, allowing him free rein to operate Aletheia as his personal fiefdom."

• Eichler, 54, is driven around L.A. in a Maybach sedan.
• Eichler recently made 2 large real estate purchases:  he bought a $4.5mn home in the Pacific Palisades;  he bought a $15 million beachfront house in Malibu, which he later sold.

For further details, go to:   [ Dealbook, 11/12/12], [Aletheia Research and Management's Bankruptcy Petition] and the [Peikin Case].