Chicago Money Managers Accused of Diverting Funds

The SEC seeks a temporary restraining order against Northshore Asset Management.
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Principals of the Chicago money-management firm Northshore Asset Management misappropriated about $37 million from two hedge funds they acquired last year, the

Securities and Exchange Commission

alleged in a complaint Wednesday.

The agency filed an "emergency enforcement action" to freeze the assets of Northshore and the two hedge funds, Ardent Domestic and Ardent Offshore, as well as onetime CEO Kevin Kelley, Robert Wildeman and Glenn Sherman. Saldutti Capital Management, the funds' previous owner, was also named.

In its complaint, the commission alleged that Northshore, through its principals, diverted about $37 million of the funds' assets to their control and invested them in illiquid securities of, and made loans to, entities in which Northshore and its principals have interests.

Most of the investigation was previously reported in

The Wall Street Journal

. Lawyers for the defendants have previously denied the charges. They weren't available to comment Wednesday night.

The SEC says the defendants didn't tell the funds' investors Northshore had acquired Saldutti and made "numerous misrepresentations" concerning the nature of the investments, their liquidity and the use of investor funds. For the last several months, the defendants have refused to honor redemption requests from investors, the agency alleged.

The SEC wants a temporary restraining order freezing the defendants' assets and appointing a temporary receiver over Northshore, SCM, Ardent Domestic and Ardent Offshore.