May 22, 2014 / 8:46 PM / 4 years ago

Executives at failed Connecticut hedge fund plead guilty

May 22 (Reuters) - Three former executives of New Stream Capital LLC, a failed Connecticut hedge fund, have pleaded guilty to conspiring to mislead their clients to keep their largest investor, federal prosecutors said on Thursday.

David Bryson, Bart Gutekunst and Richard Pereira each pleaded guilty on Wednesday in the New Haven, Connecticut, federal court to one count of conspiracy to commit wire fraud, said the office of U.S. Attorney Deirdre Daly in Connecticut.

Bryson and Gutekunst were managing partners of Ridgefield, Connecticut-based New Stream, while Pereira was its chief financial officer.

All are free on bail, and face up to five years in prison when they are sentenced in August. A trial was scheduled to begin on June 2, court records show.

The defendants had pleaded not guilty in February 2013 to securities fraud, wire fraud and conspiracy charges.

Authorities said New Stream was once a $750 million firm that specialized in investments such as loans backed by real estate and life insurance contracts.

Prosecutors said that in 2007, New Stream told foreign investors that their Bermuda fund would be closing, and that they needed to move their money into new Cayman Islands funds.

But when the firm’s largest investor decided in March 2008 to redeem its entire investment in the Bermuda fund, New Stream secretly decided to keep that fund open, and reorganize its capital structure to give priority to that fund’s investors, prosecutors said.

Investors in other New Stream funds were not told about the moves, or the degree to which investors were redeeming money, prosecutors said.

Stanley Twardy, a lawyer for Gutekunst, declined to comment. Lawyers for Bryson and Pereira did not immediately respond to requests for comment.

The U.S. Securities and Exchange Commission, which filed a related civil case, said New Stream faced $545 million of redemption requests by the end of September 2008, causing it to stop raising funds and to suspend redemptions. New Stream filed for bankruptcy in March 2011.

Chief Judge Janet Hall in New Haven is scheduled to sentence Bryson on Aug. 19, and Gutekunst and Pereira three days later.

The case is U.S. v. Bryson et al, U.S. District Court, District of Connecticut, No. 13-cr-00041. (Reporting by Jonathan Stempel in Toronto; Editing by Mohammad Zargham)

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