A former consultant for a defunct registered investment advisor has been charged by the Securities and Exchange Commission with helping to cover up tens of millions of dollars in investor losses, the SEC announced today.
Charles Samel of Sherman Oaks, Calif., was a consultant for the firm, International Investment Group (IIG), which was based in New York City. He allegedly helped IIG cover up investor losses on bad investment bets in order to protect the firm’s investment advisory business, the SEC said.
As alleged in the SEC's complaint, Samel assisted IIG's principals in concealing the fraudulent nature of a loan asset in the fund's portfolio. The complaint alleges that when auditors asked questions about the prospects that the fake loan would be repaid, Samel helped prepare a sham agreement falsely documenting the sale of the fake loan by the fund.
The sham agreement was allegedly provided to the auditors to resolve their concerns about the loan and, as a result, no issues about the loan were raised in the audit report sent to the fund investors, the SEC said.
IIG specialized in trade finance lending, which involves making risky loans to small and medium-sized companies in emerging markets. IIG served as the investment advisor to several private investment funds.
Beginning in 2007, IIG, substantially assisted by Samel, engaged in a practice of hiding losses in a fund portfolio by overvaluing troubled loans and replacing defaulted loans with fake “performing” loan assets.
The SEC's complaint was filed in federal district court in New York City, and seeks injunctive relief, disgorgement plus prejudgment interest and a civil penalty.
Last year, the SEC charged IIG with securities fraud and revoked its registration as an investment advisor. IIG was ordered to pay $35 million in disgorgement and prejudgment interest. In addition, the SEC charged one of IIG's principals, David Hu, with fraud and settled fraud charges against a senior employee, Carlos Cano, in July.