Lesser was also ordered to cease and desist from any future violations of SEC rules.
The action stemmed from the decision of Alpha Titans LLC, a registered investment advisor based in Santa Barbara, Calif., to engage McGladrey to prepare audited financial statements for distribution to investors in order to comply with the Advisers Act custody rule The funds included Alpha Titans LP and Alpha Titans Ltd., identified as Feeder Funds, and Alpha Titans MF SPC, the Master Fund. Funds from the Feeder Funds were pooled to invest in the Master Fund.
The related partners included Montreux Partners SPC and Trading Solutions Ltd. operated by Alpha Titans' principal as special purpose vehicles for use with the Master Fund's investments.
The SEC ordered the hedge fund to be shut down within three months—it was already being wound down anyway—and fined CEO Timothy McCormack and general counsel and CEO Kelly Kaeser $469,522 in disgorgement fees, $28,928.14 in interest and another $200,000 in civil penalties. McCormack, who was chief compliance officer, and Kaeser are barred from the financial services industry for a year.
McCormack and Kaeser were accused of allowing the Alpha Titans to charge the Cayman Islands-based federal funds for more than $3 million in operating expenses that included salaries and benefits, rents, parking bills, utilities, computer equipment and IT services. They were accused for failing to inform investors the expenses were being paid from their assets.
Lesser was lead engagement auditor for the audit of financial statements from 2009 through 2012. The SEC said Lesser failed to obtain evidence to determine whether related-party transactions were adequately disclosed in the funds' financial statements.
The SEC found that "In the 2010 and 2011 financial statement audits, the work papers did not even identify related-party cash transfers or transactions as a risk of material misstatement."
The SEC documents stated Lesser failed to determine if the funds failed to meet GAAP standards and provided an unqualified opinion on the financial statements he audited.Last modified on Tuesday, 12 May 2015