Bart Gutekunst, 61, of Weston, David Bryson, 44, and Richard Pereira, 40, both of Ridgefield, executives of New Stream Capital LLC, a Ridgefield hedge fund, were charged with conspiracy, securities fraud, and wire fraud offenses.
The men surrendered to the FBI in New Haven on Tuesday, Feb. 26, according to an FBI press release.
David B. Fein, U.S. Attorney for the District of Connecticut, and Kimberly K. Mertz, Special Agent in charge of the New Haven division of the FBI, relayed the following information about the case:
Mr. Bryson and Mr. Gutekunst were managing partners and principals at New Stream Capital LLC, and Mr. Pereira was the chief financial officer.
According to the indictment and statements made in court, in November 2007, New Stream launched new feeder funds, one based in the United States (U.S. Fund) and a series of funds based in the Cayman Islands (Cayman Fund). New Stream also announced its existing Bermuda Fund would be closing, and all foreign investors would have to move their investments into the Cayman Fund.
Rather than transfer into the new structure, New Stream’s largest investor placed a redemption on its whole investment in the Bermuda Fund in March 2008. At risk of losing their largest investor, it is alleged that Mr. Bryson, Mr. Gutekunst, and Mr. Pereira set in motion a scheme to secretly keep the Bermuda Fund open and give priority to Bermuda Fund investors in an effort to reverse the redemption.
As part of the scheme, the three had New Stream staff secretly reorganize the fund structure so as to effectuate the priority change.
The indictment further alleges that New Stream failed to inform investors who had transferred from the Bermuda Fund into the Cayman Fund that the Bermuda Fund was remaining open or that it was being given priority over the Cayman Fund. Moreover, New Stream continued to market New Stream to investors by concealing from them the magnitude of the actual pending redemptions and by using deceptive marketing materials that failed to disclose the existence of New Stream’s Bermuda Fund.
Each of the defendants is charged with one count of conspiracy, 10 counts of securities fraud and eight counts of wire fraud. The conspiracy charge carries a maximum term of imprisonment of five years, and the securities fraud and wire fraud charges carry a maximum term of imprisonment of 20 years on each count.
The defendants appeared before U.S. Magistrate Judge Donna F. Martinez in Hartford, and pleaded not guilty to the charges. Mr. Bryson and Mr. Gutekunst were released on $5 million bonds and Mr. Pereira was released on a $300,000 bond.
The indictment, which was returned on Feb. 22, was unsealed at that time.
“As alleged, fearing the loss of their fund’s largest investor, these defendants orchestrated a scheme to deceive investors in order to obtain and maintain investments,” stated Mr. Fein. “The U.S. Attorney’s Office and our many partners on the Connecticut Securities, Commodities and Investor Fraud Task Force are committed to protecting investors and the integrity of American capital markets.”
“It goes without saying that investing carries certain risks,” stated Ms. Mertz. “Those risks, however, should not include any chance that hedge fund managers or other investment professionals are lying to or deceiving their investors about the current state of investments. Investors have a right to full disclosure. Today’s arrests underscore the FBI’s continuing commitment to investigate those who provide material misrepresentations to investors,” she said.
The Securities and Exchange Commission also leveled charges against the men for their roles in the alleged scheme.
“Hedge fund managers who put greed ahead of full disclosure to investors violate a fundamental trust,” said George S. Canellos, acting director of the SEC’s Division of Enforcement. “Bryson and Gutekunst told investors they were all investing on equal terms when in fact some were investing in a fund that had been secretly restructured to their detriment,” he said.