The Securities and Exchange Commission has charged two hedge fund managers in Georgia with allegedly stealing $1.6 million in fund warrants and collecting fees on assets that they purposely overvalued.

Paul T. Mannion Jr., 48, of Norcross, Ga., and Andrews S. Reckles, 40, of Milton, Ga., were also accused of allegedly stealing money from investors in Palisades Master Fund L.P. to pay for their personal investments and lying about their trading positions to participate in a private offering.

"Mannion and Reckles put their own selfish interests ahead of Palisades' investors, treating the fund like their own personal bank account by stealing and improperly borrowing millions of dollars in fund assets," said Scott W. Friestad, associate director of the SEC's Division of Enforcement.

The SEC complaint dates to actions taken by Mannion and Reckles about five years ago. The complaint charges they created a fund "side pocket" and put in assets whose value they put as high as $15.3 million. The SEC alleges the assets-debt securities issued by a near-bankrupt company that eventually proved to be worthless-were intentionally overvalued by Mannion and Reckles in their disclosures to investors.

A side pocket, according to the SEC, is a type of account that hedge funds use to separate investments that are typically illiquid from the rest of the fund's investments.

"Side pockets are not supposed to be a dumping ground for hedge fund managers to conceal overvalued assets," said Robert B. Kaplan, co-chief of the SEC's Asset Management Unit. "Mannion and Reckles deceived investors about the fund's performance and extracted excessive management fees based on the inflated asset values in a side pocket."

The SEC charged the two managers with using the fund to take out a $2 million loan, which was eventually repaid.

The SEC alleges the pair defrauded investors for at least a three-month period in 2005 through PEF Advisors LLC and PEF Advisors Ltd., two investment advisor entities they controlled.