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SEC charges funds of hedge funds Alpha Titans, executives, and auditor for improper expense allocations

Thursday, April 30, 2015

Update: Please note the important updated information at the end of the article.

The Securities and Exchange Commission today announced charges against a Santa Barbara, Calif.-based hedge fund advisory firm and two executives involved in improper allocations of fund assets to pay undisclosed operating expenses. The SEC also charged an accountant who conducted the outside audit of misleading financial statements that the firm sent to investors.

An SEC investigation found that Alpha Titans LLC, its principal Timothy P. McCormack, and general counsel Kelly D. Kaeser used assets of two affiliated private funds to pay more than $450,000 in office rent, employee salaries and benefits, and similar expenses without clear authorization from fund clients and without accurate and complete disclosures that fund assets were being used for these purposes. The firm’s outside auditor Simon Lesser was aware of how Alpha Titans used fund assets but still gave his final approval of audit reports containing unqualified opinions that the funds’ financial statements were presented fairly.

The firm, both executives, and the auditor agreed to settle the SEC’s charges.

“Alpha Titans did not make the proper disclosures for clients to decipher that the funds were footing the bill for many of the firm’s operational expenses,” said Marshall S. Sprung, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Private fund managers must be fully transparent about the type a......................

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