SEC Brings Fraud Charges Against San Francisco Hedge Fund Manager

by Mike Godfrey, Tax-News.com, Washington

27 September 2007

The US Securities and Exchange Commission has charged a San Francisco hedge fund manager with defrauding investors by dramatically overstating the fund's profitability and misusing fund assets.

According to a statement released on Wednesday by the SEC, Alexander James Trabulse sent account statements to investors in his Fahey Fund that inflated the fund's returns by as much as 200%, while using investor money to purchase cars and finance shopping sprees for his family members.

The SEC went on to allege that Trabulse founded the Fahey Fund in 1997 and raised about $10 million from approximately 100 investors. He told investors that the fund invested in financial instruments like stocks, derivatives, and foreign currency. He then lured investors by touting the fund's spectacular performance, when in reality the statements he provided to investors bore no relation to the fund's actual performance.

Linda Chatman Thomsen, Director of the SEC's Division of Enforcement commented: "Trabulse betrayed the trust investors placed in him by fabricating performance figures and treating the hedge fund as if it were his own personal bank account."

Director of the SEC's San Francisco Regional Office, Helane L. Morrison added: "Trabulse encouraged his existing investors to serve as references for new investors. As a result, his false account statements not only lulled existing investors into believing their investments were hugely profitably, but lured new investors into the fraud."

The Commission also alleged that Trabulse misused fund assets to pay for a wide variety of personal expenses, using the fund's bank account to pay for cars, a home theater system, and his ex-wife's overseas shopping allowance. He even gave one relative free reign to use the fund's bank accounts for personal use.

Trabulse is accussed of violating the antifraud and registration provisions of the federal securities laws, and the SEC is seeking disgorgement, penalties, and other relief.

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