UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16770 / October 17, 2000
SEC SEEKS EMERGENCY RELIEF IN HEDGE FUND FRAUD
SECURITIES AND EXCHANGE COMMISSION v. ASHBURY CAPITAL PARTNERS, L.P., ASHBURY CAPITAL MANAGEMENT, L.L.C., and MARK YAGALLA, 00 Civ. 7898 (RCC)(S.D.N.Y.)
The Commission announced that it filed today a Complaint in the United States District Court for the Southern District of New York charging one individual and two entities with a scheme to defraud limited partners who invested several millions of dollars in a purported limited partnership hedge fund. The Commission simultaneously filed an emergency application asking the court, among other things, to temporarily and preliminarily enjoin the defendants from committing the violations alleged in the Complaint, appoint a temporary receiver over the defendants, freeze the defendants' assets, direct each of the defendants to provide an accounting, permit expedited discovery and prohibit the destruction of documents.
Named in the Complaint filed today are:
Ashbury Capital Partners L.P. ("Ashbury Fund"), a limited partnership organized under the laws of the State of Delaware. Ashbury Fund has been represented as a "private hedge fund which seeks to achieve capital appreciation through a portfolio devoted primarily to short-term trading opportunities in domestic equities."
Ashbury Capital Management L.L.C. ("Ashbury Management"), a Delaware limited liability corporation, is located in Grasonville, Maryland. Ashbury Management has been represented as the general and managing partner of Ashbury Fund, providing investment management and advisory services to Ashbury Fund.
Mark Yagalla ("Yagalla"), age 23, resides in Wilmington, Delaware. Yagalla is the principal of Ashbury Management, and has been represented as the President, Chief Executive Officer and portfolio manager of Ashbury Fund.
The Complaint alleges that:
Yagalla, Ashbury Management, and Ashbury Fund raised millions of dollars from at least twenty investors in a fraudulent offering of limited partnership interests in Ashbury Fund. The Defendants represented that the proceeds raised from investors in the offering would be used for short-term trading of equities and other investments in securities on behalf of the fund and the partners. Yagalla, by himself and through Ashbury Fund and Ashbury Management, has portrayed himself to potential investors as a successful trader and has boasted that, by trading securities over the last nine years, he has achieved an average of 80% return on his investments. In reality, Yagalla has misappropriated a substantial portion of funds of Ashbury Fund for his own personal use and other improper purposes, and has depleted the assets of the fund, which has not engaged in any securities trading at least during the past summer. To conceal the misappropriation of fund assets and trading losses, Defendants have sent investors falsified monthly statements significantly overstating the holdings and performance of investor accounts, and have distributed monthly updates that misrepresent the performance and status of the fund. Yagalla is currently scrambling to raise more money for Ashbury Fund by soliciting other funding sources, possibly including other investors, and by attempting to divest himself of assets at below-market prices if necessary.
As a result of the foregoing, the Commission alleges that Yagalla, Ashbury Management and Ashbury Fund committed securities fraud in violation of Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a), Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5. The Commission further alleges that Ashbury Management, aided and abetted by Ashbury Fund and Yagalla, violated Sections 206(1) and (2) of the Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-6(1) and (2). In addition to the interim relief sought in the application filed today, the Commission seeks a Final Judgment against Yagalla, Ashbury Management and Ashbury Fund: (i) enjoining them from future violations of the above-cited provisions; (ii) requiring the disgorgement of all of their ill-gotten gains, plus pre-judgment interest; and (iii) assessing civil penalties against them.
The litigation is pending as to all defendants.