The Securities and Exchange Commission (SEC) has charged Western Pacific Capital Management LLC and its president, James O’Rourke, with securities fraud. The California-based firm allegedly materially represented the liquidity of a hedge fund and failed to disclose to clients a conflict of interest related to the fund. Stock fraud lawyers are watching this and other hedge fund fraud cases in which investors may be seeking to reclaim their losses.
The conflict of interest occurred when O’Rourke and the firm urged their clients to invest in a security on which they would earn a 10 percent commission. In addition, they did not register as a broker, did not provide written disclosure, did not properly redeem the interest of one hedge fund investor before another, and omitted and misstated aspects of the hedge fund’s liquidity. The security in question was stock offered by Ameranth Inc. and sales took place in 2005 and 2006. Investments made by Western Pacific clients earned the firm $450,495 in “success fees.” In addition, from 2005 to 2008, O’Rourke and Western Pacific stated that their hedge fund, The Lighthouse Fund LP, consisted of only 25 percent illiquid assets when, in truth, it consisted of 90 percent illiquid securities.
One investor, who did not want the $800,000 of Ameranth stock he currently owned, was given his interest in cash by O’Rourke after Western Pacific used the Lighthouse Fund to resolve the dispute. This took place ahead of a different client that had requested a full redemption previously, thus the redemption of interest did not take place in the proper order.
According to the SEC’s press release, Assistant Director in the SEC Enforcement Division’s Asset Management Unit, Marshall S. Sprung, said, “Investment advisers have a fiduciary duty to act in the best interests of their clients and be forthcoming with them. Western Pacific and O’Rourke fraudulently breached that duty by failing to disclose the commissions they would receive for the recommended investments and lying to clients about the liquidity of the fund they managed.”
If you believe you are one of the many investors who unknowingly contributed to the $450,495 of undisclosed fees, or have been the victim of other hedge fund fraud, you may have a valid securities arbitration claim. To find out more about your legal rights and options, contact an investment attorney at The Law Office of Christopher J. Gray at (866) 966-9598 for a no-cost, confidential consultation.