The Securities and Exchange Commission today filed fraud charges against the head of several San Francisco-based hedge funds, accusing him of misappropriating millions of dollars from investors nationwide, including senior citizens. According to the Commission, Edward Ehee, 43, of Oakland, defrauded investors in the Compass West Fund, Viper Founders Fund, and Viper Investments, diverting much of the money towards mortgage and car payments, vacations, and personal bank accounts. Among other things, the Commission's complaint alleges that although the Viper Founders Fund essentially ceased operations by late 2002, Ehee was continuing to raise money as recently as May 2006, using bogus account statements and phony financial reports showing millions of dollars in non-existent fund assets to lure new investments.
The federal district court for the Northern District of California issued an order Wednesday morning freezing the assets of Ehee, the investment advisory firms he controls, and the funds, as well as the assets of Ehee's wife, brother, and father, all of whom received thousands of dollars of investors' money from Ehee.
Helane Morrison, District Administrator of the SEC's San Francisco District Office, said, "Ehee preyed on innocent investors, ranging from a neighbor who entrusted Ehee with his children's money to a senior who liquidated her life savings to invest in Ehee's funds. Today's court action confirms the willingness of the Commission to take emergency action where necessary to protect investors."
According to the Commission's complaint, Ehee told investors that their money would be placed into the funds managed by the two fund management companies he controlled, where it would be invested in accord with various securities trading strategies. In fact, according to the Commission, significant sums were obtained long after Ehee had closed the Viper Fund's brokerage accounts and ceased any investment activity. Instead, Ehee converted money invested in Viper and Compass to personal use. In addition, as in a classic Ponzi scheme, Ehee used money raised from new investors to pay off previous investors. In order to conceal his fraud and induce further investments, Ehee provided investors with account statements showing that their money was safe and continuing to generate positive returns. In addition, Ehee provided one investor in early 2006 with supposedly audited financial statements showing the Viper Founders Fund held over $18 million in assets and had 10% annual returns. Yet, according to the Commission, by that time the fund was essentially defunct. Ehee even fabricated an audit opinion letter from an accounting firm that had never actually audited the fund.
The Commission's complaint charges Ehee and his management firms, Compass Fund Management and Viper Capital Management, with violating the antifraud and other provisions of the federal securities laws and seeks permanent injunctions prohibiting future violations of the securities laws, an accounting, disgorgement, and civil penalties.
