SEC claims hedge fund firm gained $10 million in fees from overvaluing assets

Yorkville Advisors reaped at least $10 million in excess fees after overvaluing assets it managed and exaggerating returns to hide losses, the SEC said in a complaint filed Wednesday.

Mark Angelo, the hedge fund firm’s founder and president, and Edward Schinik, the firm’s CFO, enticed an unidentified pension fund as well as individual clients to invest more than $280 million since 2008 by making false claims about the safety and liquidity of their investments, the SEC said in a lawsuit filed in U.S. District Court in New York.

The case is the seventh to come from an SEC initiative to identify and probe firms reporting returns that outpace benchmarks for their stated investment strategy. Investigators found that Yorkville also withheld adverse information from its auditor, enabling the firm to carry some of its largest investments at inflated values, the Securities and Exchange Commission said.

“The analytics put Yorkville front and center on our radar screen,” Bruce Karpati, head of the SEC’s enforcement unit that polices money managers, said in a statement. “When we looked further we found lies to investors and the firm’s auditors as well as a scheme to inflate fees by grossly overvaluing fund assets.”

The firm disputes all of the SEC’s allegations, “as they lack merit and are entirely without support,” Mr. Angelo said in a statement.

“Yorkville at all times has acted appropriately and implemented robust control procedures to ensure the proper valuation of assets,” Mr. Angelo said in the statement, noting that the company employed two former SEC enforcement lawyers on its valuation committee. “After enduring an SEC investigation that was clearly driven by an agenda, Yorkville looks forward to defending this matter and having the SEC subject to the supervision of a federal district court.”