Fund Administrator Settles SEC Charges For Missing Red Flags

The SEC has taken action against Theorem Fund Services LLC (TFS), a Boca Raton-based fund administrator. The charges revolve around TFS’s failure to respond to red flags related to a fraudulent scheme targeting a private fund and its investors. 

The Background

TFS found itself entangled in a web of deception as it provided administration services to a fund managed by EIA All Weather Alpha Fund Partners and Andrew M. Middlebrooks. The SEC had previously charged both EIA and Middlebrooks with fraud in May 2022, alleging their involvement in a scheme that spanned five years, featuring the misappropriation and misuse of investors’ funds.

Calculating the Losses

During TFS’s tenure as the fund’s administrator, significant losses were incurred due to trading activities orchestrated by EIA and Middlebrooks. However, a crucial detail emerged: TFS, under the direction of these individuals, calculated the Net Asset Value (NAV) without acknowledging these losses. As a result, TFS sent investors account statements that significantly overstated the value of their investments.

Gatekeeper Responsibilities

The SEC’s Co-Chief of the Enforcement Division’s Asset Management Unit, Andrew Dean, emphasized the vital role played by fund administrators as gatekeepers within the private fund space. He pointed out that TFS had a critical responsibility to uphold, and yet, they failed in their duties by distributing inaccurate account statements to investors despite the existence of clear red flags.

SEC’s Findings and Settlement

The SEC’s order unequivocally establishes TFS as a contributing factor to several violations, including those of the Securities Act of 1933, the Investment Advisers Act of 1940, and Rule 206(4)-8(a)(1) thereunder. In light of these findings, TFS has opted to settle without admitting or denying guilt.

As part of the settlement, TFS has agreed to a cease-and-desist order. Moreover, they will be required to pay a civil penalty amounting to $100,000. In addition to the penalty, TFS will disgorge $18,000, coupled with prejudgment interest totaling $4,271.

Read the Full Press Release

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Sallah Astarita & CoxRepresenting Advisors and Investors, Nationwide.
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