SEC says hedge fund manager, broker committed fraud, overvaluation

By Susanna Moon

Chicago, Dec. 5 - The Securities and Exchange Commission said it filed a civil injunctive action related to a fraudulent scheme to overvalue illiquid asset holdings of the now insolvent hedge fund Millennium Global Emerging Credit Fund, thereby inflating the fund's reported returns and net asset value.

The defendants named in the commission's complaint are Michael Balboa, the fund's former portfolio manager, and Gilles De Charsonville, a broker with BCP Securities, LLC, according to an SEC notice.

The SEC's complaint was filed in the U.S. District Court for the Southern District of New York.

The complaint alleges that from January through October 2008, Balboa "surreptitiously provided De Charsonville and another broker with fictional prices for them to pass on to the fund's outside valuation agent and its auditor," the release said.

This scheme allegedly caused the fund to overvalue two of its illiquid securities holdings by as much as $163 million in August 2008, according to the commission.

The complaint alleges that the defendants violated or aided and abetted violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, Section 206 of the Investment Advisers Act of 1940 and Rule 206(4)-8 and, as for Balboa, Section 17(a) of the Securities Act of 1933.

De Charsonville is also charged with violating Financial Industry Regulatory Authority Rule 5210.

The commission seeks a permanent injunction against future violations, disgorgement of ill-gotten gains plus prejudgment interest and monetary penalties.

The United States Attorney's Office for the Southern District of New York, which conducted a investigation of this matter, also announced the arrest of Balboa and the simultaneous filing of a criminal complaint against him based on the conduct that is alleged in the SEC's complaint, according to the commission.

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