The SEC today charged a San Diego-based investment advisory firm and its president with fraud for failing to disclose a conflict of interest to clients and materially misrepresenting the liquidity of a hedge fund they managed.  SEC Enforcement alleges that Western Pacific Capital Management LLC and Kevin James O’Rourke urged clients to invest in a security, but failed to disclose that it would receive a 10% commission. Additionally, Western Pacific and O’Rourke:  (i) failed to register as a broker-dealer;  (ii) failed to provide required written disclosures to clients;  (iii) improperly redeemed one hedge fund investor’s interest ahead of another’s;  and, (iv) made material misstatements and omissions to clients regarding the fund’s liquidity. SEC's Detailed Allegations. The SEC found that, in 2005 and 2006, Western Pacific and O’Rourke acted as brokers in the non-public offering of stock by Ameranth Inc.  For their efforts, the pair received about $483,000 “success fees.”  Most resulted from investments made by clients of Western Pacific. Unrelated to that offering, the SEC alleges that, from 2005 to 2008, Western Pacific and O’Rourke misrepresented the liquidity of The Lighthouse Fund LP, a hedge fund that they formed and managed.  They repeatedly told investors and potential investors that only 25% of the Fund's assets were invested in illiquid asset, when, in fact, illiquid securities made up about 90% of the fund's assets. According to the SEC’s order, Western Pacific used Lighthouse Fund assets to resolve a dispute with a client who no longer wanted his $800,000 of Ameranth stock. O’Rourke caused the fund to buy some of the stock and permitted the client to use the remainder of the stock to finance his investment in the fund. O’Rourke ultimately redeemed the client’s interest in the fund for cash ahead of another client who had previously requested a full redemption. Alleged Rule Violations. As presented in the SEC order, the pair willfully violated Section 17(a) (Securities Act of 1933), Sections 10(b) and 15(a), and Rule 10b-5 (Securities Exchange Act of 1934), along with Sections 206(1), 206(2), 206(3), and 206(4), and Rule 206(4)-8a of the Investment Advisers Act of 1940. SEC Staff Credits. Investigation by:  the L.A. Regional Office's Dabney O’Riordan and Marshall Sprung;  members of Enforcement's Asset Management Unit.   Related examination conducted by Jason Haggar, under supervision of branch chief Dara Campbell.  Litigation will be conducted by Ms. O'Riordan and Donald Searles.    [SEC PR 11-239, 11/10/11]