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Matthias Knab, Opalesque for New Managers: In December 2019, the board of the Hatteras funds had a decision to make. Two established secondary brokers had each looked at the portfolio and come back with much the same answer: liquidating it would take about a year and cost roughly 20% of net asset value. The board found that unattractive and sent the adviser away to find something better.
What it eventually got instead cost the funds approximately $300 million.
On 18 September the Securities and Exchange Commission censured Hatteras Investment Partners and its co-founder and chief executive David B. Perkins and ordered them to cease and desist from further violations of Section 206(2) of the Advisers Act. Perkins will pay a civil penalty of $250,000. Both respondents settled without admitting the findings.
The order is worth reading in full by anyone who sits on a fund board or runs an operational due diligence function, because it is not a fraud case. Section 206(2) carries a negligence standard, and the Commission did not allege that anyone set out to deceive. This is a case about what happens when one person does the due diligence alone, overrides the only qualified objection in the building, and presents the result to a board that has no independent means of testing it.
What was bought
By 2020 the Hatteras Core Funds, a master fund and four feeders holding a portfolio of private and hedged investments, had shrunk from roughly $1.5 billion in 2014 to under $400 million. Redemption requests had reached more than half of net asset value. The funds needed out.
In March 2021 a former Hatteras managing director, by then working in sales for a private company called Beneficient, approached Perkins. Beneficient claimed to offer liquidity solutions to holders of alternative assets. It was at the time a subsidiary of GWG Holdings, the Nasdaq-listed company that funded itself by selling high-yield "L Bonds" to retail investors.
The structure they agreed was unusual, and its unusual feature was the selling point. Rather than sell the portfolio to a secondary buyer at a discount, the master fund would exchange its entire holdings for preferred B-2 shares of Beneficient, valued at the funds' full net asset value. When Beneficient listed publicly, those shares would convert to common stock, be sold, and the cash returned to shareholders. No haircut.
There was a second limb to the arrangement that the order records without charging. Beneficient and Hatteras also agreed that Hatteras would continue managing the underlying portfolio funds after transfer, and that Beneficient would contribute assets to seed new funds for Hatteras to manage in future. The adviser, in other words, had economic reasons of its own to want the transaction to happen.
The red flags, in order
The sequence set out in the order is the part that should trouble allocators, because none of it was hidden.
During negotiations it emerged that 88% of Beneficient's assets were attributable to goodwill, and that the company had posted net losses of $50.9 million and $167.3 million in the two preceding years. Perkins concluded that these losses were entirely GWG's fault and told Beneficient he could not recommend the deal until the two companies separated. Beneficient agreed and GWG announced the planned deconsolidation in August 2021.
Perkins then satisfied himself that Beneficient was profitable on a standalone basis. According to the order, he reviewed financials that appeared to support this and took no further steps to verify it.
The risks were not buried. The Commission notes that they appeared on the first two pages of Beneficient's private placement memorandum, again in the summary section, and a third time in detail under risk factors. They included that the company had no significant operating history, that there was no public market for the B-2 units so investors might have to hold them indefinitely, that the B-2 units ranked junior to several other share classes, that nobody had conducted an independent due diligence review of Beneficient's affairs or financial condition, and that the goodwill and intangibles might need to be written down.
Then, on 5 November 2021, with the deal not yet signed, GWG filed its 2020 annual report. It disclosed that it was under SEC investigation over matters including Beneficient's accounting practices and goodwill valuation, and it restated its financial statements for 2019 and the first three quarters of 2020, eliminating the interest income previously reported for Beneficient.
Perkins continued finalising the terms.
The man who said no
The most uncomfortable paragraph in the order is the twenty-first.
In mid-November 2021, Perkins recognised, in his own words as quoted by the Commission, that he was "not a CPA, not a CFA, not a financial analyst." He asked the firm's fractional CFO to sit down with Beneficient's CFO and go through the financial statements, in his phrase, "with a fine tooth comb for a long period of time."
The CFO did exactly that. Nobody had asked him to sign off on the transaction, and he volunteered his opposition anyway, citing Beneficient's earnings and the goodwill on its balance sheet.
Perkins proceeded.
He had, the order notes, conducted the firm's due diligence on Beneficient almost entirely on his own. Outside counsel advised on deal mechanics and 1940 Act compliance. The financial analysis was his, and the one person qualified to check it had told him not to do it.
What the board was told
At the board meeting of 7 December 2021, Perkins told the directors that Hatteras had completed thorough due diligence and that the plan was in shareholders' best interests. He presented it as a route to a quick and efficient liquidation. The board, on which he sat as chairman alongside four independent directors, approved it unanimously.
He had negotiated the B-2 shares free of contractual lockup restrictions. He believed, incorrectly, that no regulatory lockup applied either.
Beneficient completed its merger with a special purpose acquisition company on 8 June 2023. The shares fell more than 40% on the first day of trading, at which point Perkins discovered the three-month regulatory lockup and found the master fund unable to sell. Over the following months Beneficient wrote down its goodwill by more than $2 billion. Press reports put the stock, which opened at around $15, below ten cents by early 2024.
GWG Holdings had filed for Chapter 11 in April 2022, four months after the Hatteras board vote.
Three years on, still not liquidated
The final failure is the quietest one. The transaction did not merely lose money. It did not do the thing it was designed to do.
Because approvals to transfer ownership of the underlying portfolio funds had not been obtained, the agreement gave Beneficient the rights, obligations and economic interests attaching to those assets without giving it ownership. That spared both parties the slow work of transferring each fund individually. It also meant the master fund never stopped holding them.
Three years after Beneficient's listing, the order records, every one of the Core Funds remains in a plan of liquidation, and the master fund can neither de-register nor terminate.
The board rejected a proposal that would have taken about a year and cost about a fifth of the portfolio. Seven years later the funds are still not wound up, and the shareholders have lost approximately $300 million.
The price
Perkins will pay $250,000, in four instalments spread across twelve months. Against $300 million of investor losses, that is roughly eight hundredths of one percent. There is no disgorgement. There is no bar and no suspension.
He remains, per the order's own description of him, chief executive, co-founder, majority owner and current chief compliance officer of Hatteras Investment Partners, and chairman of the boards of the funds it manages. Neither he nor the firm had any prior disciplinary history. In its March 2026 Form ADV, Hatteras reported approximately $114.7 million under management, down from the $1.5 billion the Core Funds alone held in 2014.
What allocators should take from it
There is nothing exotic in this case. No offshore structure, no fabricated marks, no missing administrator. Every fact that mattered was in a public filing or on the first two pages of a memorandum.
What failed was the process around one man's conviction. A chief executive who accurately described himself as unqualified to analyse the financials analysed them anyway. The only person who was qualified objected, in writing, and was overruled by someone to whom he reported. An independent board approved a transaction it had no way to test, on the representation that diligence had been thorough. And the adviser stood to keep managing the assets and receive seed capital for new funds whichever way the deal went for shareholders.
Each of those is a question an operational due diligence review can ask before the fact, and each of them has an answer that does not depend on hindsight. Who performed the analysis. What are their qualifications. Who disagreed, and what happened to them. What does the manager receive if the transaction completes. What can the board independently verify.
The Hatteras shareholders were not defrauded. They were simply on the wrong side of a decision that nobody in the room was in a position to challenge.
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