Hennessee charged in Bayou hedge fund case

Investment adviser Hennessee Group LLC and its principal, Charles Gradante, have been charged with securities law violations by the SEC for failing to perform an advertised review and analysis before recommending Bayou Management LLC hedge funds that were later discovered to be a fraud.
APR 23, 2009
Investment adviser Hennessee Group LLC and its principal, Charles Gradante, have been charged with securities law violations by the SEC for failing to perform an advertised review and analysis before recommending Bayou Management LLC hedge funds that were later discovered to be a fraud. In a settled administrative proceeding, Hennessee and Mr. Gradante were ordered to pay $814,644 in disgorgement and penalties, and to stop committing further violations of securities law. New York-based Hennessee also must adopt policies to ensure adequate disclosures and provide copies of the Securities and Exchange Commission’s order to current and prospective clients for two years. Hennessee Group had $518.6 million under management, according to its 2008 ADV disclosure form. The firm and Mr. Gradante consented to the settlement without admitting or denying the findings. The firm’s lawyers could not be reached for comment. About 40 clients invested millions of dollars in the Bayou hedge funds, based in Stamford, Conn., from February 2003 through August 2005 after Hennessee Group recommended the investments, according to a SEC statement. Bayou was later found to have defrauded their investors by fabricating performance in client account statements. Bayou managers were charged with fraud in 2005 by the SEC. Hennessee did not perform any analysis of Bayou’s results after Bayou refused to produce its trading data, the SEC said in the release. “Investment advisers must make good on their promises or face the consequences of vigorous SEC enforcement action,” Robert Khuzami, director of the SEC’s Division of Enforcement, said in the release. “We need to do something about fraud audits,” Mr. Gradante said. “We need to outsource the SEC’s fraud audits to third parties that specialize in forensic accounting and have the experience in uncovering fraud. It is quite obvious that fraud detection is extremely difficult,” he said. Congress should mandate that fraud audits be performed by third party experts, Mr. Gradante said.

Latest News

eMoney supports focused financial planning with enhanced needs analysis
eMoney supports focused financial planning with enhanced needs analysis

The Fidelity-owned fintech aims to help advisors connect with mass market and mass affluent prospects with single-goal conversations.

Trump SEC pick Paul Atkins grilled by Democrats in early political test
Trump SEC pick Paul Atkins grilled by Democrats in early political test

The prospective chair of the agency has pledged to shed conflicted interests and "return common sense to the SEC."

Finra moves to boot Alpine Securities, same firm that claims the regulator can’t
Finra moves to boot Alpine Securities, same firm that claims the regulator can’t

'If I were on the side of Alpine Securities, I’d put all my eggs in the federal court,' one attorney said.

CFP Board floats new procedural rules around bankruptcy, misdemeanors
CFP Board floats new procedural rules around bankruptcy, misdemeanors

If approved, the proposed revisions would achieve outcomes similar to the existing process while reducing the burden of oversight.

What pre-retirees don't know about Social Security could be hurting them, says T. Rowe Price
What pre-retirees don't know about Social Security could be hurting them, says T. Rowe Price

Survey research reveals gaps in retirement savers' knowledge, pessimism around receiving benefits, and a lack of good options to solve looming solvency crisis.

SPONSORED Retirement plan balances are flourishing. Why are so many advisors missing out on a $3 trillion opportunity?

Participants who receive professional 401(k) advice see higher returns on average, net, than those who don't.

SPONSORED Focus on clients, not compliance – why Gary Corderman found his fit with Farther

This wealth management platform finally delivers on the technology promises other firms couldn't - giving advisors a better way to scale and serve