Friday, January 29, 2016

SEC Orders Canadian Adviser to Return $2.8M to Investors

By Matthew Garza, J.D.

The SEC has ordered a New York investment adviser and its Toronto-based manager to return $2.877 million to investors after finding that the manager lied about the performance of the fund and deviated from the fund’s established strategy by plowing most of investor funds into a single penny stock. The settled administrative order found that the adviser and its Canadian manager violated Securities Act Sec. 17(a), Exchange Act Sec. 10(b), Investment Advisers Act Secs. 206(1), 206(2), and 206(4), as well as Investment Advisers Act Rule 206(4)-8. In addition to reimbursing investors $2.877 million, he agreed to pay a $75,000 penalty and be barred from the securities industry (In the Matter of Peter Kuperman, Release No. 33-10009, January 28, 2016).

QED Management was founded in 2004 by Canadian citizen Peter Kuperman. The fund was established as a pooled investment vehicle and stated that its goal was to provide above-market returns with volatility equal to or less than the market by selecting industries and stocks through the use of a quantitative algorithm. From 2005 through 2008, the manager gathered approximately $1.2 million from a close relative and that relative’s business associates. He claimed to be using 285 varying metrics within the categories of momentum, growth, value, risk, and estimates to select multiple stocks likely to outperform the market. He represented that no more than 20 percent of the fund’s assets would be invested in a single security, and no more than 5 percent in an illiquid security.

Losses begin to mount. In 2009, the fund performed miserably, losing 79 percent in the first quarter. The manager instead reported higher returns by replacing the actual investments with hypothetical returns that would have been achieved if he had applied the fund’s strategy correctly. From 2010 to 2013, he gathered $2.2 million more from investors. In 2010, according to the Commission, the manager met two Canadian penny stock promotors with a record of securities fraud and agreed to invest in a shell company they were promoting after conducting no due diligence. He eventually sank $1.4 million into the illiquid stock and experienced heavy losses.

“Investment advisers must be completely candid when disclosing two key features that investors rely upon when making investment decisions: investment strategy and historical performance. This settlement enables investors in the QED Benchmark LP hedge fund to receive full monetary relief for losses suffered when they were misled on both fronts,” said Andrew Calamari, Director of the SEC’s New York Regional Office.

The release is No. 33-10009.

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