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Alternative Market Briefing

Shuttered UK hedge fund Pentagon Capital fined $78.6m by SEC for late trading

Wednesday, February 15, 2012

Bailey McCann, Opalesque New York: On Tuesday, U.S. District Judge Robert W. Sweet issued his final ruling, in favor of the Securities and Exchange Commission (SEC) on the case Securities and Exchange Commission v. Pentagon Capital Management PLC, 08-cv-3324, U.S. District Court, Southern District of New York.

In the case, the SEC claimed that Pentagon Capital Management Plc (PCM), a now closed U.K.-based hedge fund, had engaged in abusive trading. The complaint alleged, in April 2008, that PCM and its CEO Lewis Chester had orchestrated a scheme to defraud mutual funds in the U.S. and their shareholders through late trading and deceptive market timing. PCM's advisory client, Pentagon Special Purpose Fund, Ltd., obtained approximately $62m in illicit profits through this scheme, at the expense of U.S. mutual funds and their shareholders.

The fund was then notified of the civil action by the SEC and liquidated in order to protect investors from any negative fall out over the suit.

Judge Sweet sided with the SEC, noting that the fund’s market timing strategy violated the law, and ordered Chester to pay $78.6m in mix of alleged illicit profits and civil fines.

However, the judge also dealt a blow to the SEC, the Wall Street Journal ......................

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