SEC Charges Hedge Fund Manager with Portfolio Pumping

SEC Charges Hedge Fund Manager For Portfolio Pumping

Alleged to have purchased shares to pump up existing portfolio holdings.

By John M. Baker, Esq.

June 5, 2001 – The SEC on Friday announced that it had filed securities fraud charges against a hedge fund manager and several related entities for market manipulation and fraudulently inflating and misrepresenting the value of a hedge fund. Litigation Release No. 17021 (June 1, 2001).

The case represents the first SEC enforcement action against portfolio pumping, the practice of purchasing additional shares of a security already held in a portfolio in order to temporarily drive up the security’s price. According to the SEC’s allegations, the hedge fund had about 40% of its net assets invested in the stock and warrants of, an OTC Bulletin Board company. At the end of each month from August through December 2000, the hedge fund manager purchased large quantities of common stock at increasing prices on the last trading day of each month. These purchases manipulated the stock price upward at the end of each month, in some cases more than doubling it.

The manager also assigned arbitrary values to the warrants that were higher even than the price of the underlying stock. Even as additional investors subscribed to the hedge fund at the resulting inflated net asset values, the manager and his entities effected redemptions of more than $2.4 million between August 2000 and February 2001.

The SEC litigation release is available online at


Copyright 2001, John M. Baker, Esq., Stradley, Ronon, Stevens & Young, LLP, 1220 19th Street, N.W., Suite 700, Washington, DC 20036 – (202) 822-9611- Fax (202) 822-0140 This article was originally posted to the FundLaw List, To subscribe to FundLaw, send a blank e-mail to

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.  


Return to The Securities Law Home Page 

Mark J. Astarita, Esq. is a securities lawyer who represents investors, financial professionals and firms in litigation, arbitration and regulatory matters across the country. He is a partner in the national securities law firm of Sallah Astarita & Cox, LLC and can be reached by email at or by phone at 212-509-6544.

Follow us on Twitter, Facebook and The Securities Law Blog .

Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.