Federal District Court Opinions Address the Mechanics of Repatriating Offshore Hedge Fund Assets Connected to a Fraud and When Private Parties May Intervene in an SEC Action against a Hedge Fund Manager

On June 28, 2011, the United States Securities and Exchange Commission (SEC) announced that Highview Point Partners LLC (Highview) and its affiliated hedge funds had abided by a court order and returned $230 million from an offshore account to the United States.  The announcement followed in the wake of the SEC civil enforcement action in the U.S. District Court for the District of Connecticut (District Court) against Francisco Illarramendi, his unregistered investment advisory firm, Michael Kenwood Capital Management LLC (MK Capital), and Highview, an affiliated registered advisory firm.  See “Eight Important Due Diligence Lessons for Hedge Fund Investors Arising Out of the SEC’s Recent Action against a Hedge Fund Manager Alleging Misuse of Hedge Fund Assets to Make Personal Private Equity Investments,” Hedge Fund Law Report, Vol. 4, No. 4 (Feb. 3, 2011).  The ongoing action, in which the SEC has accused these entities of misappropriating investor assets and engaging in a Ponzi scheme, had named their affiliated hedge funds as relief defendants and had sought to freeze their assets and repatriate assets from overseas.  Investors in these affiliated hedge funds had also sought to intervene as of right or permissively in the SEC’s action to protect their financial interests.  In two opinions issued on June 16, 2011, the District Court addressed the investors’ request for intervention and the SEC motion to repatriate funds.  This article details the background of the litigation and the court’s legal analysis of the repatriation and intervention issues.

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