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Thursday, March 28, 2024 | Back issues
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Unregistered ‘Adviser’ Juggled $53M, SEC Says

(CN) - An unregistered Connecticut-based investment adviser misappropriated $53 million from two hedge funds and made unauthorized investments in long-term private equity deals, the SEC says. It sued Francisco Illarramendi and the companies he runs under the rubric of Michael Kenwood Capital Management, in Hartford Federal Court.

Illarramendi, of Stamford, Conn., is an unregistered investment adviser, the SEC says. He "misappropriated the funds' assets by causing fund advisor MK Capital Management to use the funds' assets to purchase interests in private companies for the benefit of Illarramendi and other entities that he controls," according to the complaint. "This self-dealing created an undisclosed conflict of interest and was in breach of Illarramendi's fiduciary duty to the funds."

The largest of Illarramendi's private equity investments was in a West Coast-based "Nuclear Energy Company," in which he invested almost $23 million, according to the complaint.

The company "is in the early development stage of product design, and does not expect to have federal approval for the sale of its product until at least 2014," the SEC says. It says the company "is not anticipated to generate investor returns, if any, until at least 2014 or upon the purchase of the shares by another investor, either privately or through an initial public offering."

Illarramendi also transferred about $20 million from the short-term liquidity fund's account "to pay for shares in a manufacturing company that is in the early development stage of creating zero-emissions mass transportation alternatives," the SEC says. He also put $4 million into an energy technology company, and $6.7 million into a Spanish steel company, according to the complaint.

According to the complaint, all of the transactions "were wholly inconsistent with the representations made by Illarramendi, the MK Venezuela Fund and the short term liquidity fund to investors in the funds at the time the investments in the funds were made."

Illarramendi allegedly told SEC staff that "the $53 million transferred from the funds to private equity investments were loans from the funds to entities controlled by Illarramendi." Investors were not informed that the funds were used to make loans to "entities controlled by Illarramendi to invest in private equity ventures," and the loans were never documented, the complaint states.

The SEC seeks an injunction, disgorgement of ill-gotten gains, and civil penalties. It also seeks to freeze his funds, an accounting, and preservation of documents.

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