SEC Suit Accuses Beacon Hill of Overstating Fund Values

Hedge fund manager Beacon Hill Asset Management was sued Thursday by the Securities and Exchange Commission, which accused the firm of failing to disclose “massive portfolio losses” to investors.

The lawsuit, filed in federal court in New York, accuses Beacon Hill of overstating the values of two hedge funds it manages, Bristol and Safe Harbor, from July to September while the funds lost $400 million, or 54% of their value.

The suit seeks civil penalties and the transfer of fund assets to a new investment manager independent of Beacon Hill.

Summit, N.J.-based Beacon Hill has agreed to move the assets of the funds to rival Ellington Management Group, a spokesman said.

Beacon Hill, founded by Jack Barry in 1997, told investors in early October that its funds had lost 25% in September. A few weeks later, the group more than doubled loss estimates and said it would close the funds over the next six months.

The SEC suit blamed the losses largely on “short” positions taken on Treasury securities, bets that the securities’ value would decline. Instead, the value of the bonds soared as market interest rates plunged.

Analysts said the Beacon Hill board’s demand that its principals turn over assets to another hedge fund is extremely rare in an industry in which sophisticated investors generally try to move their money on their own.

Confidence in Brokers Down, Survey Finds

Securities industry executives Thursday got a sobering assessment of just how upset many small investors are with Wall Street.

Hit by corporate scandals and the long bear market, investors’ opinion of the brokerage business has fallen to its lowest level in at least eight years, according to a survey by Harris Interactive.

The data were released at the Securities Industry Assn.’s annual meeting in Boca Raton, Fla.

Of the 1,500 investors polled from Aug. 22 to Sept. 22, 41% said the main issue facing the securities industry is “dishonesty.” A year ago, 8% said that was the big issue. Before this year, the highest percentage mentioning dishonesty was 14% in 1995, the first year of the survey.

A total of 55% said they have a “very favorable” or “somewhat favorable” opinion of the securities industry, down from 62% in 2001 and 63% in 2000. But significantly, the “very favorable” rating fell to 9% from 22% in 2001.

The industry’s reluctance to punish wrongdoers was cited by 68% of those surveyed as a key problem, up from 41% in 2001.

“Industry greed” was cited as a big problem by 66%, up from 52% in 2001 and 49% in 2000.

From Reuters