Mark Angelo $1Billion hedge fund Yorkville Advisors Charged by SEC With Fraud and Bogus Valuations.
SEC charged Mark Angelo and his formerly $1 billion Jersey City, N.J., hedge fund firm, Yorkville Advisors, with fraud on Wednesday, alleging they overvalued assets under management and exaggerated returns.
The tactics of Yorkville Advisors have been the subject of several Forbes articles, which noted that one Yorkville fund, YA Global Investment Fund I, never had a down month from February 2001 to July 2008 until a stunning reversal saw it report a drop of 33% in 2010, most of it in the single month of December 2010. Forbes reported in 2010 that Yorkville had disclosed to investors that it had provided information to the SEC at the direction of securities regulators.
The SEC claims that Yorkville did not adhere to its own stated valuation policies and ignored negative information about certain investments by the funds. Yorkville also withheld adverse information about fund investments from Yorkville’s auditor, which allowed Yorkville to carry some of its largest investments at inflated values. The SEC also charged Yorkville’s chief financial officer Edward Schinik of securities fraud.
According to the 35-page complaint the SEC filed in federal court in Manhattan, Angelo made Yorkville’s funds seem more attractive through fraudulent means in order to attract new investors, resulting in more than $280 million from pension funds and funds of funds that allowed Yorkville to charge the funds more than $10 million in excess fees based on the bogus asset valuations.
For many years, Yorkville Advisors was one of the biggest hedge fund firms specializing in making private investments in public equities, mostly in penny stocks, and consistently posted positive returns. It set up shop in one of Jersey City’s most exclusive office buildings with spectacular views of New York Harbor. Angelo even managed in 2009 to get Yorkville to become an eligible borrower under the Federal Reserve’s Term Asset-Backed Loan Program, under which credit was extended to investors for the purchase of certain designated securities backed by student loans, auto loans and credit card debt. In total, the Federal Reserve Bank of New York provided $233 million to finance a Yorkville vehicle’s purchase of securities, according to the financial statements of Yorkville’s flagship hedge fund, YA Global Investments. A Yorkville affiliate invested $19.6 million and used the credit extended from the Federal Reserve Bank of New York to purchase $253 million in securities in 2009.
But at the same time Angelo’s main PIPE hedge fund strategy has come under scrutiny by the SEC. Angelo had started the firm in his late 20s as Cornell Capital Partners before changing its name.
Read More Forbes