Source- http://www.sec.gov/news/press/2011/2011-30.htm
Washington, D.C., Jan. 28, 2011 — The Securities and Exchange Commission today obtained a court order freezing the assets of a Stamford, Conn.-based investment adviser and its principal, Francisco Illarramendi, charging that they misappropriated at least $53 million in investor funds and used the money for self-dealing transactions.
The SEC alleges that Illarramendi defrauded investors in the several hedge funds he managed by improperly transferring their money into bank accounts that he personally controlled. He then invested the money for his own benefit or for the benefit of the entities that he controlled, rather than for the benefit of the hedge fund investors.
“Illarramendi treated his clients’ money like it was his own, diverting millions of dollars that did not belong to him,” said David P. Bergers, Director of the SEC’s Boston Regional Office. “He abused his position of trust with his clients and breached his responsibilities as an investment adviser.”
According to the SEC's complaint filed in U.S. District Court for the District of Connecticut on January 14, Illarramendi is the majority owner of the Michael Kenwood Group LLC — a holding company for, among other entities, investment adviser Michael Kenwood Capital Management LLC. Through this adviser entity, Illarramendi manages several hedge funds, including one that contains up to $540 million in assets. The SEC’s complaint alleges that Illarramendi took at least $53 million in investor money out of this hedge fund without the knowledge or consent of the hedge fund’s investors
The SEC sought an asset freeze and other emergency relief because it alleged that Illarramendi was imminently planning to make additional investments using investor funds without the knowledge or consent of the investors. Since the filing of the complaint, the Honorable Janet Bond Arterton, U.S. District Judge for the District of Connecticut, has held a series of hearings pertaining to the SEC’s request for an emergency relief against Illarramendi and Michael Kenwood Capital Management. Judge Arterton then entered an order freezing the assets of the defendants.
The SEC's complaint charges Illarramendi and Michael Kenwood Capital Management, LLC, with violating Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The complaint also names the following Illarramendi-controlled entities as relief defendants, alleging that they received investor funds to which they have no right: Michael Kenwood Asset Management LLC, Michael Kenwood Energy and Infrastructure LLC, and MKEI Solar LP. In addition to preliminary emergency relief, the SEC’s complaint seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties from the defendants, and disgorgement plus prejudgment interest from the relief defendants.
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