(Updates with SEC suit in eighth paragraph.)
May 22 (Bloomberg) -- Three executives of defunct Connecticut hedge fund New Stream Capital LLC pleaded guilty in federal court to charges they misled clients to retain the firm’s largest investor.
David Bryson, 45, and Richard Pereira, 42, both of Ridgefield, Connecticut, along with Bart Gutekunst, 62, of Weston, pleaded guilty in New Haven today to conspiracy to commit wire fraud in connection with a scheme to secretly keep a fund open to stop its biggest investor from cashing out, the U.S. Attorney’s Office in Connecticut said in a statement.
New Stream, based in Ridgefield, started new feeder funds in November 2007, including one based in the U.S. and some in the Cayman Islands, while closing its existing Bermuda Fund and requiring all foreign investors to move their investments into the Cayman fund, according to the statement.
When the firm’s largest investor tried to redeem its entire investment in March 2008, Bryson and Gutekunst, managing partners and principals at New Stream, and Pereira, its chief financial officer, ordered staff to secretly reorganize the fund’s structure in an effort to stop the redemption, the government said.
“New Stream failed to inform investors who had transferred from the Bermuda Fund into the Cayman Fund that the Bermuda Fund was remaining open or that it was being given priority over the Cayman Fund,” the U.S. Attorney’s Office in Connecticut said in the statement. New Stream also hid from investors “the magnitude of the actual pending redemptions.”
The three men, who were arrested in February 2013, face as long as five years in prison. They were scheduled to go on trial next month. Now, they’re to be sentenced by U.S. District Judge Janet C. Hall in August. Bryson and Gutekunst are free on $5 million bail bonds while Pereira was released on a $300,000 bond.
New Stream chiefly invested in the so-called life settlement market, where life insurance policies are purchased for less than the death benefit from owners of policies on individuals’ lives.
A suit filed by the U.S. Securities and Exchange Commission against the three men over the firm’s collapse is pending in federal court in New Haven. In it, the agency says the defendants concocted a scheme to secretly revise the hedge fund’s structure to placate Gottex Fund Management Ltd., its largest investor with a stake of almost $300 million, by giving it and other preferred offshore investors priority over others in the event of a liquidation.
The hedge fund was facing more than $500 million in redemption requests as the U.S. financial crisis worsened by the end of September 2008, leading it to suspended redemptions and stop raising new funds. The firm filed for Chapter 11 bankruptcy in March 2011 in Delaware, and a court confirmed its plan in April 2012.
The case is U.S. v. Bryson, 13-cr-00041, U.S. District Court, District of Connecticut (New Haven).