The office of the U.S. Bankruptcy Trustee is asking a judge to either dismiss the Chapter 11 petition from Aletheia Research and Management either to reorganize its finances or appoint a trustee to manage the firm, or convert the proceeding into a Chapter 7 liquidation.
A hearing on the petition, which could determine the fate of the money management firm, is scheduled on Jan. 15 before U.S. Bankruptcy Court Judge Barry Russell in Los Angeles, court papers show.
On Dec. 14, the SEC filed civil fraud charges accusing Peter J. Eichler Jr., the firm’s chairman, CEO and chief investment officer, of making about a $2 million profit since 2009 by allocating a disproportionately large share of money-making trades to his personal brokerage accounts and another $2 million to favored employees and clients.
At the same time, money-losing trades were assigned to clients in two Aletheia-run hedge funds who incurred $4.4 million in losses, the SEC complaint says.
In the bankruptcy trustee’s petition, staff attorney Ron Maroko claims Aletheia’s board of trustees had no status to file for bankruptcy on Nov.9 because its license to operate as a California corporation had been suspended by the Secretary of State office because the firm failed to pay more than $2 million in back taxes.
Mr. Maroko said if the bankruptcy case is not dismissed, a Chapter 11 trustee should be appointed. Aletheia’s assets under management have continued to decline under Chapter 11, so a Chapter 11 trustee should be appointed “before there is no remaining business to sell or case to administer,” Mr. Marokosaid in court papers.
Aletheia’s AUM totaled $1.63 billion on the date of the bankruptcy filing on Nov. 9, and Aletheia management projected that it would level off at $950 million on Nov. 20, according to Mr. Maroko’s filing.
But Mr. Maroko said that was before CIBC World Markets, which had hired Aletheia to subadvise a variety of its funds, asked the bankruptcy court for permission to terminate its relationship with the money management firm.
If granted, Mr. Maroko said the termination could reduce Aletheia’s AUM to $250 million to $350 million.
Mr. Maroko said the trustee could also recover insider loans made to officers and employees that totaled $2.4 million of as Sept. 30. The recipients of the loans were not named.
Amber M. Burroff, an attorney representing Aletheia in the bankruptcy proceeding, commented in a statement on the SEC charges: “Aletheia did not intentionally or otherwise harm any of its investment products or its clients. Mr. Eichler and Aletheia were both investors in the fund in question. Mr. Eichler made additional significant personal investments in this fund during the time in question. Aletheia and Mr. Eichler look forward to cooperating with the SEC to resolve any remaining issues.”