A Chatham, N.J., financial advisor and his firm have agreed to pay more than $19.4 million to settle charges filed by the Securities and Exchange Commission for improper trading of securities, the SEC announced Monday.

The agency said the advisor, the firm and its funds improperly traded securities for American Media, the publisher of Us Weekly, the National Enquirer, Men’s Journal, In Touch Weekly and other publications. (American Media, or AMI, is now known as A360 Media.) Since the defendants also owned 78% of AMI Parent Holdings, the parent company for AMI, they were therefore selling bonds in a company they controlled, the complaint said. 

The advisor, Anthony Melchiorre of Short Hills, N.J., and his firm, Chatham Asset Management, agreed to the settlement without admitting or denying guilt. Melchiorre was the founder and principal owner of Chatham, a firm that advised a number of hedge funds, including the Chatham Asset High Yield Master Fund Ltd., the Chatham Asset Private Debt and Strategic Capital Fund LP, the Chatham Fund LP, the Chatham Everest Fund L.P. and the Chatham Eureka Fund LP, the SEC said.

Melchiorre and the firm are charged with improper trading on behalf of their fund clients in three high-yield debt securities issued by American Media Inc. The SEC said that between 2016 and 2018, Chatham and Melchiorre engaged in transactions in AMI bonds that resulted in one Chatham fund selling the bonds and a different Chatham fund purchasing them.

“Chatham engaged in these trades to address portfolio constraints such as industry or issuer fund concentration limits, meet investor redemptions, and allocate capital inflows and outflows,” the SEC said. The trades for these high-yield debt securities were executed at prices Chatham and Melchiorre proposed, the SEC said.

“Over time, the prices at which Chatham and Melchiorre traded the securities increased at a significantly higher rate than the prices of similar securities. Chatham’s and Melchiorre’s trading in the AMI bonds accounted for the vast majority of the trading in those bonds and therefore over time had a material effect on their pricing,” the SEC said.

The SEC’s order also found that Melchiorre and the firm calculated the net asset values, or NAVs, of their client funds’ holdings using pricing data that was based, in part, on the trading prices of the securities. “As a result, the net asset values of Chatham’s clients were higher than they would have been if the subject trades were removed from the market,” the SEC said. This resulted in higher fees being charged to the clients.

Melchiorre and Chatham Asset Management used the same strategies for each of the firm’s clients, which included investing in high yield bonds, leveraged loans, and credit derivatives. Through this strategy, Chatham clients held concentrated positions in debt securities issued by companies in the print media industry, including AMI, the SEC complaint said. The firm’s clients owned substantial positions in the AMI bonds, which amounted to 83% of the bonds issued by AMI.

"As our order finds, Chatham’s trading in AMI bonds had the effect of increasing the prices of those generally illiquid securities in a way that was disconnected from economic reality," said Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement, in a statement. "We remain vigilant in rooting out such misconduct in the marketplace, including in the fixed-income sector, where investments can be less liquid."

The settlement included disgorgement of ill-gotten funds, prejudgment interest and civil penalties. Melchiorre and the firm agreed to pay $11 million in disgorgement and approximately $3.4 million in prejudgment interest. The firm also will pay a civil penalty of $4.4 million, and Melchiorre will pay a civil penalty of $600,000.