SEC Launches Probe Into Collapsed Hedge Fund

by Carla Johnson, Investors Offshore.com

11 October 2005

The United States Securities and Exchange Commission has reportedly commenced its own investigation into Man Group's alleged involvement in helping the collapsed hedge fund Philadelphia Alternative Asset Management (PAAM) to conceal $175 million in losses.

It is believed that the SEC launched an "informal enquiry" into the collapse of PAAM last week, although the regulator has not yet commented on the action.

Man Group subsidiary, Man Financial, which acted as the hedge fund's broker, was accused in a contempt motion filed in a Pennsylvania court last month by Clark Hodgson, the receiver to PAAM, of helping to disguise the fund's true investment performance by hiding $175 million in losses in a secret account - losses which were not reported to investors.

PAAM, set up and managed by Paul Eustace, was launched last year and raised some $300 million from investors. However, in June this year the fund collapsed. The firm's assets, and the money remaining in its hedge funds, have been frozen by the judge overseeing the case, which has been brought by the Commodity Futures Trading Commission (CFTC).

Man Group, the world's largest listed hedge fund company, has rejected allegations that it has failed to cooperate with the US authorities in the investigation, and has stressed that it has handed over more than 4,200 pages of documentation to assist the receiver. The firm has also stated that it intends to cooperate with the SEC enquiry.

"We have an excellent record of regulatory engagement and compliance, and will cooperate fully with the SEC in connection with this review," Man said.

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