UPDATE 1-Connecticut hedge fund managers arrested on fraud charges

Tue Feb 26, 2013 5:35pm EST

By Aruna Viswanatha

WASHINGTON Feb 26 (Reuters) - Three senior executives of New Stream Capital, a Connecticut hedge fund, were arrested and charged on Tuesday for allegedly lying about the fund's structure and financial condition in 2008 before it failed.

A grand jury indicted Managing Partners David Bryson and Bart Gutekunst and Chief Financial Officer Richard Pereira on charges of conspiracy, securities fraud and wire fraud, the U.S. Justice Department said.

The executives pleaded not guilty and were released on bail, the department said.

The U.S. Securities and Exchange Commission filed related charges against the three executives and settled a related case against the fund's head of investor relations, Tara Bryson, who is David Bryson's sister.

Gutekunst's attorney, Stanley Twardy, said his client and others relied on lawyers and accountants in the matters at issue.

"He looks forward to having the opportunity to vindicate himself at trial," Twardy said.

A lawyer for Tara Bryson, Richard Portale, said the SEC did not accuse Bryson of realizing any personal gain from the conduct.

Attorneys for New Stream and the other executives did not immediately respond to requests for comment.

Authorities accused the executives of secretly revising the fund's capital structure to prioritize its largest investor, Gottex Fund Management, while continuing to tell other investors they were all on the same footing.

The $750 million fund, which focused on illiquid investments, revised its structure in March 2008 after Gottex threatened to redeem its investment, the SEC said.

A Gottex representative was not immediately available for comment.

As the financial crisis worsened in September 2008, the fund faced $545 million of redemption requests. It attempted restructuring and filed for bankruptcy in March 2011, the SEC said.

"Hedge fund managers who put greed ahead of full disclosure to investors violate a fundamental trust," said George Canellos, acting director of the SEC's enforcement division.