The allegations read: The securities and exchange commission filed fraud charges on october 2, 2017 against robert russel tweed ("tweed") and his company, tweed financial services, inc. ("tfsi"), which is a california advisory firm, with misleading investors about the profitability of a fund they managed until sec examiners discovered the fraud.
in 2008, tfsi and tweed formed and managed an investment fund, athenian fund, l.p. ("the athenian fund"), as a "feeder" to invest in a specific, unrelated fund that purported to employ a quantitative stock trading strategy. By 2010, the defendants had raised approximately $1.7 million from 22 investors, some of whom had more than one account in the fund. Although they initially invested this money in the quantitative stock trading strategy fund specified in the offering documents, tfsi and tweed later moved the investors' money into a completely different fund, the quantitative analytics master fund ("qamf"), which was operated by a business acquaintance of tweed's. In october 2010, tweed learned that approximately 40% of athenian fund's investment in qamf had not been invested in any stock at all, but was instead purportedly tied up in a one-year loan to a third party. Tweed then asked qamf's manager to return all of the money that the athenian fund had invested in qamf but obtained only that portion, approximately 40%, that had not been loaned to the third party. The defendants then caused the athenian fund to invest a portion of that returned capital in a software business run by a friend of tweed. Neither of these investments-qamf or the software business-were profitable. In fact, by 2012, tweed was on clear notice that the purported promissory note held by qamf was uncollectible, and the funds had been further conveyed to invest in a gold mining venture in ghana. In 2012, tweed also learned that the qamf manager had been indicted for bank fraud. And by 2013, tweed knew that the software business had filed bankruptcy. These investments, therefore, should have been written down and eventually written-off. Rather than notify the athenian fund's investors of the change in investment strategy and the losses on those investments, tfsi and tweed continued to send quarterly account statements to the athenian fund's investors falsely claiming flat or positive income and returns on these underperforming investments. Tfsi and tweed also concealed the fact that athenian fund assets were held in illiquid, unprofitable investments when it allowed some investors to receive full redemptions based on the inflated value of the athenian fund's assets. By engaging in this conduct, tfsi and tweed violated section 206(4) of the advisers act, and rule 206(4)-8(a)(1) and (2) thereunder. In the alternative, tweed aided and abetted tfsi's violations of section 206(4) of the advisers act, and rule 206(4)-8(a)(1) and (2).
