The SEC announced that it has recovered $230 million pursuant to a Ponzi scheme carried out by a hedge fund.  The money had been held in an offshore account by the hedge fund;  it will remain frozen pending completion of the SEC’s lawsuit against the fund’s adviser and its principal.

The SEC said the money was returned following a court order obtained by the SEC in its case against Francisco Illarramendi of Connecticut and his firm Highview Point Partners LLC, which managed 3 hedge funds.  Ethiopis Tafara, Director of the SEC’s Office of International Affairs, noted that "... the ability to freeze and repatriate the alleged financial crime proceeds was critical to the SEC’s effective enforcement of the U.S. securities laws."

SEC's Allegations.   Illarramendi and his unregistered investment advisory firm MK Capital Management was charged in January with running a multi-year, multi-million dollar Ponzi scheme.  Highview Point Partners was added as a defendant in May.

Three hedge funds managed by Highview and several entities affiliated with MK Capital Management were named as relief defendants for allegedly holding funds tainted by the Ponzi scheme.

After an evidentiary hearing, U.S. Judge Janet Bond Arterton in Connecticut entered an order on 6/16 freezing the assets of 3 hedge funds and ordering that all assets of the funds, including $230mn held in an offshore account, be immediately returned to the U.S. The judge had previously frozen the assets of Illarramendi, Highview, MK Capital Management, and several affiliated entities. 

Illarramendi, Highview, and Michael Kenwood Capital Management are charged with violating Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, and also charges Highview with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

Relief defendants, who are alleged to have received investor funds to which they have no right, include: Highview Point Master Fund, Ltd., Highview Point Offshore, Ltd., and Highview Point LP, Michael Kenwood Asset Management LLC, Michael Kenwood Energy and Infrastructure LLC, and MKEI Solar LP.

In addition to preliminary emergency relief, the SEC seeks permanent injunctions, disgorgement of ill-gotten gains plus interest and penalties from the defendants, and disgorgement plus interest from the relief defendants.   [SEC PR 11-135, 6/28/11]