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Matthias Knab, Opalesque for New Managers: The recent SEC settlement against Evan H. Katz highlights an uncomfortable truth about the hedge fund industry: even when misconduct occurs, business continues as usual. Katz, known for his past involvement with NIR Group and its ill-fated AJW funds fifteen years ago, once again finds himself entangled in controversy. In late September 2024, the SEC penalized Katz for misrepresentations related to Crawford Ventures' misleading marketing materials and fraudulent track record (see SEC release, coverage on Opalesque, discussion of this case on LinkedIn) . Yet, just days later, Katz sent a marketing email to his network, promoting hedge fund events and investment opportunities as if nothing had transpired.
This nonchalance is not new for Katz. In fact, just eight months prior, he was touting his accomplishments on LinkedIn, boasting of his 17,000 connections and the numerous referrals he and Crawford Ventures had garnered. Katz's continued marketing efforts underscore a deeper issue - how easily hedge fund promoters with questionable histories can rebrand themselves and continue raising capital.
History of Red Flags: From NIR Group in 2009 to Today
Katz's involvement in the NIR Group in 2009 should have been a major warning for investors. At the time, NIR was a Long Island-based hedge fund that froze redemptions after overpromising on returns. The firm, managed by Corey Ribotsky, and heavily promoted by Katz, had touted unrealistic performance, luring investors into believing in its seemingly stellar track record. However, behind the scenes, the fund was plagued by liquidity issues and misappropriation of investor money.
The case has been covered by Jenny Strasburg and Amir Efrati of The Wall Street Journal, citing an email from Katz: "'We are very proud to continue to make large positive absolute returns on behalf of our investors (including during these challenging times),' Evan Katz, who marketed the firm's funds, wrote to current and prospective investors in AJW on Oct. 6. He reported that AJW funds were up between 8.2% and 11.1% for the year through September."
"If you would like to make an initial investment, or an additional follow-on allocation, please let me know before the end of the month," Mr. Katz wrote.
On Oct. 16 2009, NIR barred withdrawals and sought to restructure funds in question, according to documents. Mr. Katz declined to comment to the WSJ back then.
On September 28, 2011, the SEC charged The NIR Group, LLC, et al., alleging that Corey Ribotsky and his firm, once valued at $876 million, was defrauding investors in hedge funds investing in PIPE transactions and misappropriating more than $1 million in client assets for his personal use.
The SEC said that Corey Ribotsky and The NIR Group repeatedly lied to investors to hide the truth that his PIPE investment and trading strategy was failing during the financial crisis.
Fast forward to 2024, and similar patterns emerge with Crawford Ventures. Katz, according to the SEC, failed to verify the legitimacy of documents used to market his Crawford Ventures Absolute Return Fund, LP, leading to significant financial losses for investors. Despite this, Katz managed to raise $16 million from 45 investors, according to the SEC. More: "The millions of dollars of trading profits reported in the Historical Transactions Sheet were fictitious", "investors suffered aggregate net losses of approximately $4.1 million, the SEC said in its complaint against Crawford Ventures Absolute Return Fund's managers Akshay Kamboj and Dev Kamboj.
According to the SEC, that fund planned to liquidate due to losses by December 2023 while at the same time - email sent by Katz on Dec. 7th 2023 - Katz was still heavily promoting the fund with statements such as: "Due to the stellar performance of Crawford's eight-professional investment team, over almost eight years (CAGR +50%/year, Sharpe >2, Sortino >4), Crawford has been honored by Hedgeweek, including at its big awards ceremony in Manhattan."
Brushing Off Regulatory Scrutiny
What's alarming about Katz is not just the actions themselves but the manner in which he seemingly brushes off regulatory scrutiny. On October 1, 2024, just two business days after the SEC settlement, Katz sent an email to his large contact list titled "From Evan, re Hedge Fund Industry," as though the SEC's findings were a minor blip on his radar. This nonchalant attitude should raise concerns about the ease with which certain hedge fund figures can evade meaningful repercussions and continue their business dealings as though nothing has changed.
Lessons for Investors
Evan Katz's story, from his involvement with NIR Group in 2009 to his current entanglements, serves as a critical lesson for investors. Thorough due diligence is paramount, particularly when faced with fund managers and marketers who have a history of regulatory issues. Katz's ability to continue operating and raising funds despite multiple red flags underscores the need for heightened investor vigilance and industry oversight.
While Katz may view his latest SEC penalties as a speed bump, for investors, it should serve as a wake-up call. The hedge fund industry must remain diligent in its oversight, ensuring that managers and promoters like Katz cannot easily re-enter the market with little regard for past misdeeds.
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