SEC Compounds Charges Against Financial Advisor After ‘Obstruction of Justice’ Attempt

Jack Humphrey, Regulatory journalist
March 08, 2011 /

Hard on the heels of an order from the US District Court in Connecticut freezing the assets of a financial advisor for hedge fund misappropriation, Francisco Illarramendi faces another wave of charges from the Securities and Exchange Commission and Connecticut’s US Attorney’s Office for trying to mislead authorities in the course of the investigation.

The SEC sued Francisco Illarramendi last month for treating “his clients’ money like it was his own, diverting millions of dollars that did not belong to him” according to Director of the SEC’s Boston Regional Office David Bergers.

The SEC has amended the original lawsuit filed on January 28 this year suing the financial advisor, together with his firm, Michael Kenwood Capital Management, for allegedly defrauding new investors using a scam that promises high returns with little risks, also known as Ponzi scheme.

The defendants conceded to SEC’s settlements covering hundreds of millions of dollars in illegal profits.

Illarramendi and MK Capital Management allegedly misappropriated the assets of their investors by paying off their old investors using the money of new ones included in two hedge funds that they misused.

The SEC additionally claims that the financial advisor tried to mislead its staff in the course of the investigation from December 2010 to January 2011 by providing them with a false letter professed to be coming from an accountant based in Venezuela.

The letter allegedly stated that these hedge funds were missing assets, with the other hedge fund containing a verified amount of $275 million. The SEC found that those assets were non-existent.

As a result of the Ponzi scheme and misappropriation of assets , Illarramendi’s several other hedge funds have diminished in value, including one that holds up to $540 million in assets.

Also named relief defendants were Michael Kenwood Asset Management LLC, Michael Kenwood Energy and Infrastructure LLC, and MKEI Solar LP, entities that had no right to the assets diverted to them by the financial advisor.

 

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