Catalyst Capital Advisors to pay $1.3 million in CFTC settlement

The firm also will disgorge almost $9 million over misstatements about its futures fund

Catalyst Capital Advisors will pay a $1.3 million civil monetary penalty as part of a settlement with the Commodities Futures Trading Commission over allegedly misleading and fraudulent statements the firm made concerning the risks connected with its Catalyst Hedged Futures Strategy Fund. The firm also will disgorge $8,980,481 of advisory fees, which includes interest.

As part of the CFTC’s settlement, Catalyst CEO and majority owner Jerry Szilagyi will pay a civil monetary penalty of $300,000 plus interest.

As InvestmentNews reported in 2017, assets in the Catalyst Hedged Futures Strategy Fund soared from $1.2 billion in 2015 to $2.2 billion at the end of 2016, perhaps in part because Morningstar had categorized it as a managed futures fund instead of an options-writing fund.

In its order, the CFTC said that Catalyst and its agents made representations regarding risk management that were materially misleading. Specifically, the firm represented that strict risk management protocols were in place, including stop-loss measures to limit losses, and that the fund manager took specific steps to stress-test the portfolio and to limit losses to 8% of assets under management, the CFTC said. Catalyst also told investment advisers that risk metrics were reviewed by a dedicated risk manager on a daily basis. All those statements were false or misleading, according to the CFTC.

Separate from the settlement, the commission charged Edward Walczak, the fund’s portfolio manager, with fraud in U.S. District Court for the Western District of Wisconsin.