Hedge funds are usually run by traders.

Not Beacon Hill Asset Management, the New Jersey fund that the

Securities and Exchange Commission

claims repeatedly misled investors while losing more than $400 million in the mortgage-backed securities market.

In fact, the primary duty of John Barry, Beacon Hill's president and founder, was pitching the firm to wealthy investors. Barry didn't do any trading. And industry sources say that's unusual for someone who put himself out as the public face of one of the mortgage-backed securities market's bigger players.

The prospectus for one of three funds Beacon managed describes Barry's primary responsibilities as fostering "client relationships," "product development" and "speaking at industry conferences" about the hedge fund business. And it appears that's the kind of work he did for the only other hedge fund he's been involved with.

All the trading decisions at Beacon, meanwhile, were made by Thomas Daniels, chief investment officer for the Summit, N.J., hedge fund, and John Irwin, Beacon's director of credit-sensitive products. The prospectus says the success of the fund is "highly dependent" on their trading skills.

"Most hedge fund are run by traders," said Laurence Penn, managing director of the Ellington Management Group, the $2 billion Connecticut-based hedge fund that was picked by the Beacon funds with SEC approval to run the estimated $500 million still left at Beacon. As for Beacon's setup, "I think that's unusual," Penn said.

Ellington's chief executive and founder is well-known trader Michael Vranos.

Beacon, which once bragged that it had $2 billion in combined assets, agreed to be removed as manager of the funds, as part of the SEC's continuing investigation into the hedge fund's early autumn blowup. Unsurprisingly, it's no longer taking new investments.

A few weeks ago it was believed Beacon was just another honest fund whose greater-than-expected losses were due to a series of bad bets the hedge fund made on the spread, or difference, between the interest rates charged on U.S. Treasuries and the interest rates on mortgage-backed securities. It appeared that Beacon simply had gotten squeezed between an unforeseen acceleration in the rate of mortgage prepayments and a simultaneous spike in Treasury prices.

But in a complaint filed in Manhattan federal court on Nov. 7, the SEC now contends that Beacon "materially overstated" the net asset values and returns it was earning on all of its funds from July 31 through Sept. 30. Regulators contend that during those months, the hedge fund allegedly misled investors by sending them a series of email messages that purported to be a true picture of the performance of the various funds.

The SEC took the swift action after Beacon last month told its investors -- many of whom invested a minimum of $1 million in the three funds -- that its losses in the mortgage-backed security market were far worse than it previously had reported to them.

Stories circulated Friday that

Bear Stearns

(BSC)

, the primary broker and custodian for Beacon's trading activities, dropped a dime on the potential discrepancies in Beacon's valuations. Bear Stearns declined to comment.

For now, none of the principals at Beacon, including Barry, have been charged with any wrongdoing (only the fund has). Barry didn't return a phone call to Beacon's offices. Scott Edelman, the lawyer for Beacon, declined to comment.

The glare of scrutiny can only get brighter from here. An SEC attorney said the agency's investigation is continuing and is only in its infancy. One of the things the SEC is trying to determine is whether the alleged misrepresentations by Beacon were a case of overt deceit or a less venal attempt by the hedge fund to fudge its results and buy itself some time until the market for mortgage-backed securities recovered.

Meanwhile, a lawyer representing a group of investors says it's only a matter of time before he files a lawsuit against Beacon.

"I'm looking at every entity that has had any involvement with the fund as possible defendants," said Scott Berman, a partner with Brown Rudnick Berlack & Israel in New York.

Besides Barry, the other principals include Daniels, Irwin, Mark Miszkiewicz, the fund's chief financial officer, and Asset Alliance, a $4 billion New York investment management firm that has a 50% equity stake in Beacon. Asset Alliance provides seed money and capital to hedge funds. Bruce Lipnick, a longtime Wall Street investor and a former stockbroker, manages Asset Alliance.

A spokesman for New York-based Asset Alliance, which delegated the daily operations of Beacon to the four other principals, declined to comment.

Neither Lipnick nor Asset Alliance were named as defendants in the SEC compliant. But one of the named defendants is the Milestone Plus Partners, a fund set up by Asset Alliance. Corporate records in New York list Lipnick as the agent for the fund

Like many hedge funds, each of the three managed by Beacon is a separate legal entity, having its own board of directors and corporate charter. But the boards often play a passive role in the operation of the funds and the management of the hedge fund's affairs.

As the SEC became involved in the Beacon affairs, however, the fund's boards were moving on their own to oust Barry and his management team, a legal source said. Most of Beacon's funds are based in the Cayman Islands and run by lawyers based in that Caribbean nation.

Barry founded Beacon in 1997, after leaving the Clinton Group, an $8.8 billion hedge fund in New York. He brought Daniels, Irwin and Miskiewicz with him and reportedly some of its investors. In the prospectus, Barry describes himself as a "partner" at the Clinton Group but doesn't say what he did. Sources say he worked at Clinton for about a year and did marketing. A source says Barry wasn't considered an owner or high-ranking officer at the fund.

He graduated from Marist College in New York with a degree in history and business.

A New Jersey hedge fund manager familiar with Barry and Beacon, said the firm's name is reference to a hockey club in Summit, N.J., to which Barry belongs.