A Minneapolis manager has been charged by the SEC with bilking investors in two hedge funds out of more than $1 million in fake research fees and with manipulating stock prices, the SEC announced Tuesday.
The complaint also charges the manager’s firm and an employee of being involved in the scheme.
Steven R. Markusen, the manager of Archer Advisors LLC, and Jay C. Cope, the fund employee, carried out the scheme to enrich themselves while the hedge funds' performance and their management fees were declining, the SEC says.
Cope’s $10,000 monthly salary was attributed to research fees by Markusen, who then got a $1,000 a month kickback from Cope. Cope did no research for the funds and was engaged in placing trades and finding new investors. Cope spent the money on country club dues, boarding school tuition and a Lexus, the SEC charges.
The pair also devised a scheme to charge investors twice for the same fake research under the pretense that Cope was an independent contractor, the SEC says.
The SEC's complaint filed in federal district court in Minneapolis also charges Markusen and Cope with conducting a separate scheme to manipulate the stock price of the funds' largest holding in order to inflate the monthly returns reported to investors and conceal the true extent of the funds' mounting investment losses, the SEC says.
According to the SEC's complaint, Markusen and Cope carried out their portfolio-pumping scheme by manipulating the price of the thinly traded stock of CyberOptics Corp., which made up more than 75 percent of the funds' portfolios.
The SEC's complaint charges Archer, Markusen, and Cope with violating the antifraud provisions of the federal securities laws and certain reporting provisions.