November 12, 2013 / 9:00 PM / 4 years ago

Ex-hedge fund exec wins SEC leniency for helping thwart fraud

* First SEC deferred prosecution agreement with individual

* Tips helped uncover Heppelwhite hedge fund fraud

By Jonathan Stempel

Nov 12 (Reuters) - A former hedge fund administrator has reached an agreement with the U.S. Securities and Exchange Commission that marks the first time the regulator agreed not to begin an enforcement action against an individual as a reward for cooperating in a probe.

The SEC on Tuesday said it entered a deferred prosecution agreement with Scott Herckis, a certified public accountant from Stamford, Connecticut, for his “voluntary and significant cooperation” that helped halt a fraud by Berton Hochfeld, founder of the hedge fund Heppelwhite Fund LP.

Hochfeld, 67, is serving a two-year prison sentence after pleading guilty last January to securities fraud and wire fraud counts, court and prison records show.

Investigators said Hochfeld, a principal at Hochfeld Capital Management LLC in Stamford, who also had an office on Manhattan’s Park Avenue, misappropriated more than $2 million from investors and inflated his fund’s performance.

The SEC said Herckis, the owner of SJH Financial LLC in Stamford, was the administrator for the Heppelwhite fund from Dec. 2010 until his Sept. 2012 resignation.

It said he then alerted investigators to Hochfeld’s fraud, and produced “voluminous documents” to back up his claims.

In his Nov. 8 agreement, which states that he aided and abetted Hochfeld’s fraud, Herckis, 42, agreed to a five-year ban from serving as a fund administrator, providing hedge fund services, and associating with brokers and investment advisers.

He must also give up $50,290 in fees and interest to help compensate harmed investors. A Manhattan federal judge last month approved a roughly $6.1 million payout to those investors.

“We’re committed to rewarding proactive cooperation that helps us protect investors,” associate SEC enforcement director Scott Friestad said in a statement.

“However,” he said, “the most useful cooperators often aren’t innocent bystanders. To balance these competing considerations, the DPA holds Herckis accountable for his misconduct but gives him significant credit for reporting the fraud and providing full cooperation without any assurances of leniency.”

A deferred prosecution agreement lets a defendant avoid possible charges by fulfilling certain conditions, usually over a period of years, which can result in dismissal of a case.

The SEC has only civil enforcement powers, unlike federal prosecutors who have criminal enforcement powers.

“With the resolution of this matter, Scott looks forward to continuing his complete cooperation with the SEC and to moving forward with his personal and professional life,” said Bridget Moore, a partner at Baker Botts who represents Herckis.

Former SEC Enforcement Chief Robert Khuzami in January 2010 announced that the regulator would begin using deferred prosecution agreements to encourage cooperation in probes.

In May 2011, Tenaris SA, a provider of steel pipes to the oil and gas industry, became the first company to enter such an agreement with the SEC, as part of a resolution of criminal and civil bribery probes.

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below