Catalyst Capital Advisors told its investors that it had a dedicated risk manager. It told them that this dedicated risk manager monitored its risk metrics daily. It said that it had safeguards to prevent losses in excess of 8%. So when it lost 20% over the course of three months, it was either because that risk manager and those safeguards weren’t very good, or because they didn’t exist. Care to guess which one?

Catalyst Capital Advisors LLC (CCA) and its President and Chief Executive Officer, Jerry Szilagyi, agreed to pay a combined $10.5 million to settle the charges. The SEC also filed a complaint in federal district court in Madison, Wisconsin, against Senior Portfolio Manager, Edward Walczak, for fraudulently misrepresenting how he would manage risk for the fund.

Catalyst is found liable for the misstatements of the fund’s portfolio manager regarding his management of the Fund’s risk, as well as Catalyst’s misrepresentations that stop-loss measures were in place to limit losses, when in fact no such measures existed. Additionally, while Catalyst represented that a dedicated risk manager monitored the fund’s risk metrics daily, the risk manager did not actually do so.

SEC Charges Portfolio Manager and Advisory Firm with Misrepresenting Risk in Mutual Fund [SEC]
CFTC Orders Commodity Pool Operator, CEO to Pay More Than $10 Million for Misleading Statements, Supervision Failures [CFTC]

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