30/09/2024
SEC hits Evan H. Katz of Crawford Ventures with cease-and-desist, $202K penalty in $16M misrepresentation case, emphasizing the need for thorough due diligence in fund marketing and operations, even when dealing with seemingly accomplished industry figures. In 2023 it took
Opalesque Publications just ONE call from the team to find out something was wrong with Crawford's offering and that the story presented did not add up.
The order stems from alleged misrepresentations in the fund's private placement memorandum (PPM) and marketing materials, which led to the fund raising over $16 million from approximately 45 investors.
Key Points:
The fund claimed its currency trading strategy mirrored a successful approach previously used by two principals, Akshay and Dev Kamboj, in Separately Managed Accounts (SMAs). To substantiate these claims, prospective investors were provided with forged "Audit Report" and "Performance Audit" documents, purportedly issued by an Australian audit firm. Katz failed to take reasonable steps to verify the legitimacy of these documents and the Kamboj brothers' trading track record.
The fund used unverified performance data to obtain accolades from two hedge fund analytics and marketing services, which were then prominently featured in marketing materials.
By December 2023, the fund had raised approximately $16 million but informed investors of plans to voluntarily liquidate due to trading losses.
The SEC found that Katz violated Sections 17(a)(2) and 17(a)(3) of the Securities Act, which prohibit obtaining money through material misstatements or omissions and engaging in fraudulent practices in the offer or sale of securities. Importantly, these violations can be established through negligence alone.
As part of the settlement, Katz agreed to:
- Cease and desist from further violations
- Pay disgorgement of $98,542.97 plus prejudgment interest of $5,397.83
- Pay a civil penalty of $98,542.97
The case highlights the importance of thorough due diligence and verification of track records, especially when dealing with unfamiliar parties or extraordinary performance claims. It also underscores the SEC's continued focus on misrepresentations in fund marketing materials and the use of third-party performance rankings.
Fund managers should take note of this case as a reminder to implement robust verification processes for all performance data and third-party accolades used in marketing materials. The SEC's willingness to bring charges based on negligence alone emphasizes the need for heightened vigilance in fund operations and investor communications.
Fund Principals Akshay and Dev Kamboj charged with pitching fund investors using fake performance history
Separately, the Securities and Exchange Commission also filed today charges against brothers Akshay and Dev Kamboj with defrauding investors by using offering materials that fraudulently presented their trading track record.
According to the SEC's complaint, filed in the United States District Court for the Southern District of New York, the Fund told prospective investors that it would engage in currency trading using a successful strategy previously employed by Akshay and Dev Kamboj for other clients prior to the Fund's formation. As alleged in the complaint, the Kamboj brothers provided proof of the purported success of the strategy, including an "Audit Report" and a "Performance Audit" purportedly issued by an Australian audit and consulting firm.
In reality, according to the complaint, the auditor had never performed an audit for the Kamboj brothers, and the Audit Report and the Performance Audit, which were furnished to a number of prospective investors, was fake.
The complaint further alleges that the Kamboj brothers created a fictitious email address to impersonate the auditor in communications with potential investors.
The SEC therefore charges Akshay and Dev Kamboj with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest thereon, and civil penalties.
The ONE call Katz didn't do
Katz contacted Opalesque stating that "The Kamboj brothers' forgery was very deceptive, and was not detected by any of the Crawford fund's very large and prominent national and international outside law firms, nor by the fund's global 'Big Four' accounting and audit firm [with none of which Crawford is working any longer], nor by any of the fund's numerous institutional, family office, or other investors."
"In addition, Crawford and I deeply regret that we too, and for the first and only time in decades, also were deceived and defrauded by the Kamboj brothers."
"I only wish that I, or any of our 50+ accountants, attorneys and investors had detected the Kamboj brothers' fraud, or said that they suspected that anything was or might be wrong. But none of the 50+ people ever did."
However, after Katz provided his fund marketing to Opalesque Publications in June 2023, it took our team exactly ONE call to Australia to find reasons to stay away from this fund.
As a commentator on LinkedIn said: "Don't know what's more disturbing ... that best fund raiser managed to raise only 16M for a track record that great, or that that fund's outlandish claims weren't detected by them?"
Another one added that "The $202K penalty for defrauding investors is laughable, almost serving as an open invitation for other bad guys to enter the club," and that "Hedge fund awards are meaningless and can be easily bought. When we conduct due diligence on fund managers, the presence of awards can be a red flag that prompts to investigate the fund more thoroughly."
Reckless marketing
According to the SEC, in early 2022, "Katz caused an associate to provide another hedge fund analytics and marketing service ("Ranking Service 2") with the Kamboj brothers' SMA strategy's purported track record. Ranking Service 2 issues awards to hedge funds based on their reported performance. Based upon the SMA track record, which Ranking Service 2 acknowledged receiving, between February 2022 and August 2022, Ranking Service 2 issued 8 different awards to the Fund, with rankings including #1, #3, Top Ten, and Top Twenty in various categories, six of which were in categories for traders "managing more than $10M."
These awards featured prominently in the Fund's marketing materials for soliciting potential investors. As described above, Katz failed to take reasonable steps to confirm the accuracy of the Kamboj brothers' track record before providing that information to Ranking Service 2.
In August 2022, Ranking Service 2 directed the Fund to cease and desist from using the awards, because the returns the Fund had reported were for the SMAs prior to the formation of the Fund. Thereafter, the Fund continued to use Ranking Service 2's awards in the Fund's marketing materials that were provided to the Fund's prospective investors, and Katz continued to reference the awards in communications with investors, without taking reasonable steps to ensure their accuracy. Although the Fund asserted in a "Disclaimer & Legal Notice" page of its marketing PowerPoint that Ranking Service 2 had "sought to withdraw the awards," Katz continued to cite the Ranking Service 2 awards in communications with investors without any disclaimers."
According to the SEC, the fund planned to liquidate due to losses by December 2023 while at the same time - email sent by Katz on Dec. 7th 2023 - Katz was still heavily promoting the fund with statements such as: "Due to the stellar performance of Crawford's eight-professional investment team, over almost eight years (CAGR +50%/year, Sharpe >2, Sortino >4), Crawford has been honored by Hedgeweek, including at its big awards ceremony in Manhattan."
After learning of the Kamboj brother's fraud from the SEC, Mr. Katz promptly took numerous effective actions in order to block and prevent the Kamboj brothers from having any further ability to trade, to access the fund's brokerage and bank accounts, or otherwise to affect the Crawford hedge fund or its investors.
During the Fund's operations, Katz's share of incentive compensation and management fees totaled $98,542.97.
