A Florida judge froze the assets of Lancer Management Group LLC, after the
Securities and Exchange Commission
complained that its skipper, Michael Lauer, had inflated the performance of three hedge funds over the past three years.
Judge William Zloch, of the U.S. district court in South Florida, filed a temporary restraining order against Lauer after the SEC said he had "engaged in a scheme to overinflate the performances and net asset values" of three hedge funds that he controlled from at least March 2000 to the present.
Lauer and advisers Lancer Management Group and Lancer Management II systematically manipulated the month-end closing prices of certain securities held by the funds to overstate the value of the funds' holdings in virtually worthless companies," the complaint alleges.
The attorney for Lauer and Lancer wasn't immediately available for comment.
The SEC complaint goes on to say that Lauer, a former Wall Street analyst, lied to auditors to obtain audited financial statements for Lancer Offshore, one of the funds he controlled. Lauer recently claimed to have more than $1 billion of assets under management.
"The fraudulent manipulative trading practices and pumped-up valuations employed by Lauer, Lancer and Lancer II were designed to attract new investors to invest in the funds and to induce current investors to forgo redemptions and to continue investing in the funds, which resulted in increased management fees paid to the defendants," the SEC's complaint alleges.
A hearing has been set for July 18, and the defendants' assets will be frozen until then, the SEC said.
Lancer's troubles appear to stem from its investment in thinly traded penny stocks; in a number of instances the fund also lent money to such companies. The firm had large equity stakes in
World Wireless Communications
Cross Media Marketing
, according to SEC filings.
Cross Media, which Lancer held a 29% stake in, has since gone bankrupt, while the others trade for pennies.
Last year, one of Lancer's employees, Bruce Cowen, was charged by federal prosecutors with taking part in an alleged kickback and stock-manipulation scheme involving restricted shares of
Lighthouse Fast Ferry
-- a company the Lancer Group owns a 62% stake in. The New York City-area ferry company filed for bankruptcy in January.
The indictment identified Cowen as a "managing director" of the Lancer Group and "chairman" of another firm, Capital Research. That indictment, brought by prosecutors in Florida, didn't charge Lancer or anyone else associated with the hedge fund.
Lancer isn't the only fund to spark controversy this year. Allegations of misconduct have also surfaced at the Lipper Convertible Bond Funds, Gotham Partners and Beacon Hill. The SEC moved to shut down Beacon Hill last fall, after claiming the hedge fund misled investors about how it lost an estimated $400 million in the mortgage-backed securities market.
Investors in Lancer's fund included pop singer Britney Spears and Sotherby's former chairman A. Alfred Taubman. Taubman resigned from the auction house in 2000 shortly before Sotherby's pleaded guilty to violating federal antitrust law by fixing prices with chief rival Christie's.