SALT LAKE CITY (CN) – Thompson Consulting “robbed one client to pay another,” SEC enforcement director Linda Chatman Thomsen said in announcing an SEC lawsuit against the Salt Lake-based investment adviser and its three principals. Kyle Thompson, David Condie and Sherman Warner lost virtually all of investors’ $54 million in two Thompson-managed hedge funds, trying to cover losses by throwing money into options on New Century Financial Corp., a subprime lender, the SEC said.
From March through August 2007, Thompson Consulting engaged in progressively riskier trades, in violation of its promises to clients, to try to achieve its promised 36 percent annual returns, the Commission said. To do that, the defendants wrote options on New Century stock, which collapsed in March 2007, the SEC said. To try to recoup that, the defendants “invested virtually all the hedge funds’ assets in unhedged options on the VIX, the CBOE’s volatility index, in July and August 2007. Virtually all of the hedge funds’ assets were wiped out when the securities markets dropped sharply in mid-August. … (F)rom July 31 to Aug. 17, 2007, the net asset value of the hedge funds fell from approximately $54 million to approximately $200,000,” the SEC said.
The SEC seeks penalties, disgorgement from the defendants and several relief defendants, and injunctions.