[ by Howard Haykin ] The SEC charged a New York fund manager and his 2 firms for luring investors into a trading program that of his today announced charges against a New York-based fund manager and his two firms for luring investors into a trading program that would purportedly maximize their profits but instead spent their money in unauthorized ways. Three Defendants, One Relevant Entity.

Jason Konior, 38, a resident of Manhattan and the founder, managing general partner and investment adviser of AFA, and the principal manager and member of AFM. At one time, he held Series 7 and 63 securities licenses.  Over a 10-year period, between 1996 and 2005, Konior was employed at 17 different securities firms, and he amassed a significant numbers of customer complaints.   Several of his employers found that he engaged in improper trading in customer accounts, made unauthorized transactions, and recommended unsuitable investments.  In 2008, Konior pled guilty to a misdemeanor for repeatedly failing to file income tax returns.

AFA is a New York LLC with its principal office in Manhattan.  AFA is an unregistered IA formed by Konior in 2006. As of September 2011; Konior falsely claimed that AFA had approximately $220 million in trading capital.  AFA and Konior marketed LP interests in non-party Absolute (see below) to potential investors.

AFM is a New York LLC, also operated in Manhattan. It is the GP and investment manager of Absolute, although it too is not registered with the SEC in any capacity. Konior is the principal manager and member of AFM.

Absolute, a New York LP, also in Manhattan, was formed by Konior on 7/15/06.  AFM serves as the manager of Absolute.

SEC Findings and Allegations. Beginning at least as early as 2008, Konior, AFA, and AFM offered for sale, through a Private Placement Memorandum ("PPM"), unregistered LP interests in Absolute with a minimum investment of $250K.  The PPM states that the primary investment objective of Absolute is "growth of capital" and that the partnership may engage in "all forms of investment." Since at least November 2011, Jason Konior and his firms raised approximately $11 million by selling investors LP interests in Absolute Fund LP, an investment vehicle that Konior allegedly claimed had $220 million in trading capital.  Konior and his firms also allegedly falsely claimed that Absolute Fund would allocate millions of dollars in matching investment funds, place the combined funds in brokerage accounts through which investors could trade securities, and operate a "first loss" trading program that would allow investors to dramatically increase their potential profits. Instead of using investor funds for trading purposes, the named parties misappropriated - i.e., siphoned off - about $2 million of the proceeds to pay redemptions from earlier investors and to pay their personal and business expenses. Konior allegedly falsely represented to several investors that upon receipt of their investments, Absolute Fund would:

• Allocate capital of up to 9 times the amount of investor’s capital contribution.
• Place combined funds in a sub-account at a broker-dealer through which the investor could trade securities.
• Allocate any trading losses first to the investor’s contribution amount, and then any trading profits would be shared between Absolute Fund and the investor.

However, the SEC alleges that Absolute Fund did not actually operate the first loss trading program as promised.  Absolute Fund also did not provide these investors with any matching funds, nor did it satisfy investor demands for returns of their capital contribution.

"Konior falsely portrayed Absolute Fund as a legitimate investment vehicle designed to maximize investors’ access to trading capital in order to grow their hedge fund businesses.  In reality, Konior’s operation became a way for Konior to funnel cash to his firms and himself for unauthorized purposes." -- Bruce Karpati, Co-Chief of SEC Enforcement - Asset Mgmt Unit.

Action Taken by SEC, and Sanctions Sought. The SEC obtained an asset freeze against Konior and his companies on Thursday, late yesterday in federal court in Manhattan. Defendants are charged with violating antifraud provisions of the SEA of 1934 and seeks, among other things, disgorgement of ill-gotten gains, and financial penalties.  Defendants consented to the entry of an order freezing their assets. Federal Judge Louis Stanton issued the court order granting such relief.  The SEC investigation continues. SEC NY Reg'l Office Staff Credits. Investigation by Catherine Lifeso, Lara Mehraban, Kerri Palen, and Ken Joseph.  All but Ms. Palen are with Enforcement's Asset Management Unit. Aaron Arnzen is leading the litigation. For further details, go to:   [SEC PR 12-103, 5/25/12] and [SEC Complaint].