US Securities and Exchange Commission - VALIC

SEC Charges Hedge Fund Adviser and Top Executives With Fraud

SECWashington D.C., Sept. 30, 2019 — The Securities and Exchange Commission today charged SBB Research Group, LLC, a Chicago-area hedge fund adviser and its two top executives with a multi-year fraud that inflated fund values.

According to the SEC’s complaint, SBB Chief Executive Officer Samuel Barnett founded the firm in 2010 while still in college, raised millions from friends and family members, and invested almost exclusively in structured notes. The complaint alleges that as SBB sought outside investors, Barnett and Chief Operating Officer and Chief Compliance Officer Matthew Aven promised prospective investors that they would use “fair value” when recording investments. Instead, they used their own valuation model to artificially inflate the value of the structured notes. As a result, SBB misstated the funds’ historical performance and overcharged investors approximately $1.4 million in fees. According to the complaint, once the valuation issues were uncovered by SEC exam staff, the defendants took steps to conceal their fraud from investors and SBB’s auditor. The complaint alleges that when SBB hired an outside valuation firm in 2016, performance for its flagship fund was slashed, and SBB surreptitiously credited investors for the overcharged fees but did not disclose the underlying problem.

“Investors rely on investment advisers to accurately value assets and disclose fund performance,” said Daniel Michael, Chief of the SEC Division of Enforcement’s Complex Financial Instruments Unit. “As alleged in the SEC’s complaint, SBB, Barnett, and Aven intentionally manipulated valuation models to deceive current and prospective investors.”

The SEC’s complaint, filed in the U.S. District Court for the Northern District of Illinois, charges the defendants with violations of the antifraud provisions of the federal securities laws and seeks permanent injunctions and civil penalties.

The SEC’s investigation was conducted by Kevin Wisniewski and supervised by Jeffrey Shank, both of the Complex Financial Instruments Unit and the Chicago Regional Office, with assistance from Craig McShane and Max Gillman of the Chicago Regional Office and Chiu-Wang Chan of the San Francisco Regional Office. Timothy Leiman and Robert Moye will lead the litigation.