January 12, 2015 / 10:02 PM / 5 years ago

Adviser featured in 'Big Short' liable for fraud: SEC judge

WASHINGTON (Reuters) - An investment adviser featured in “The Big Short,” the Michael Lewis best-seller about the financial crisis, misled investors about a complex financial product and is liable for fraud, a U.S. government judge ruled on Monday.

Defendant Wing Chau exits the Jacob Javits Federal building in New York April 7, 2014. REUTERS/Brendan McDermid

Wing Chau and his firm Harding Advisory LLC were found liable by Securities and Exchange Commission Administrative Law Judge Cameron Elliot. Elliot ordered the firm to pay a $1.7 million penalty, and ordered Chau himself to pay $340,000.

In a 103-page decision, the judge also barred Chau from the industry, revoked the firm’s registration and ordered them to jointly disgorge more than $1 million in profits and interest.

The SEC had accused Chau and his firm of allowing a hedge fund to control which assets backed a $1.5 billion structured collateralized debt obligation known as “Octans I CDO Ltd” without disclosing that critical information to investors.

A lawyer for Chau, Alex Lipman, declined comment.

Chau rose to fame for the way Lewis depicted him in his book about the financial crisis. Chau sued Lewis for defamation, saying the book unfairly depicted him as a villain. But he lost the case.

During his SEC trial last year, he made headlines when he broke down crying on the stand and shouting “shame on you” to an SEC attorney who was questioning him.

Elliot cited Chau’s antics on the stand in his opinion Monday, saying that his “histrionics ... eroded his overall credibility.”

He also said that Chau’s testimony at times “was not believable.”

Monday’s ruling by Elliot marks the second big blow for Chau.

Last month, a federal judge ruled against a bid by Chau to block Elliot from ruling in the case.

Chau had argued that the SEC’s administrative proceeding violated certain constitutional due process rights.

Reporting by Sarah N. Lynch and Aruna Viswanatha; Editing by David Gregorio

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