SAN FRANCISCO (CN) – The SEC filed a settled complaint accusing investment adviser MedCap Management & Research and its principal Charles Frederick Toney Jr. with “portfolio pumping.” Toney bought huge amounts of a thinly traded penny stock at the end of the fiscal quarter, quadrupling its price, so he could report higher quarterly earnings to hedge fund investors, the SEC said.
Toney agreed to pay $170,634 in fines and refrain from being an investment adviser for a year. Also, the SEC will censure him.
The SEC order says Toney’s hedge fund, MedCap Partners, facing a 40 percent quarterly loss in September 2006, bought heavily in a thinly traded over the counter stock in which it already was invested, driving the share price from 85 cents to $3.72. That paper value allowed Toney to report quarterly earnings of $29 million, rather than the loss. After the brief bounce, the value of the stock, and MedCap’s assets, returned to previous levels – but not until MMR had charged fees based on the inflated quarter-ending asset value, the SEC says.