The Securities and Exchange Commission today announced settled charges against Theorem Fund Services LLC (TFS), a fund administrator based in Boca Raton, Florida, for failing to respond to red flags relating to a fraud against a private fund and its investors.
According to the SEC’s order, TFS provided administration services to a fund managed by EIA All Weather Alpha Fund Partners and Andrew M. Middlebrooks, both of whom the SEC charged in May 2022 with fraud for allegedly engaging in a scheme that included the misappropriation and misuse of investors’ funds over a five-year period. According to the order, during TFS’s engagement, the fund suffered significant losses as a result of trading by EIA and Middlebrooks; however, TFS, at the direction of EIA and Middlebrooks, calculated the Net Asset Value, which did not recognize the losses, and sent investors account statements that materially overstated the value of their investments.
“Fund administrators are important gatekeepers in the private fund space,” said Andrew Dean, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Here, TFS failed to live up to its gatekeeper responsibilities and distributed inaccurate account statements to investors despite clear red flags.”
The SEC’s order finds that TFS was a cause of certain of EIA’s and Middlebrooks’ violations of the Securities Act of 1933 and of the Investment Advisers Act of 1940 and Rule 206(4)-8(a)(1) thereunder. TFS agreed, without admitting or denying the SEC’s findings, to a cease-and-desist order and to pay a civil penalty of $100,000. In addition, TFS agreed to pay disgorgement of $18,000 and prejudgment interest of $4,271.
The SEC’s ongoing investigation is being conducted by Heather E. Marlow and Brian Fitzpatrick of the Asset Management Unit and Marc Ricchiute and Tracy Bowen of the Denver Regional Office, with assistance from Daniel Faigus of the Division of Examinations’ Private Funds Unit and trial counsel Zachary Carlyle of the Denver Regional Office. The matter was supervised by Kimberly Frederick of the Asset Management Unit.
Jeffrey Newman is a whistleblower lawyer who handles cases under the Securities & Exchange Whistleblower Program. He can be reached at Jeff@JeffNewmanLaw.com
