The Securities and Exchange Commission today announced charges against a New York-based investment adviser for misleading investors about the management of risk in a mutual fund. CCA and its President and Chief Executive Officer, Jerry Szilagyi, agreed to pay a combined $10.5 million to settle the charges. The SEC also filed a complaint in federal district court in Madison, Wisconsin, against Senior Portfolio Manager, Edward Walczak, for fraudulently misrepresenting how he would manage risk for the fund. CCA advises Mutual Funds and discloses $5.7bn in their most recent Form ADV. Convergence’s risk rating was and is High-Watch.
The SEC's settled order against CCA and Szilagyi finds that, although CCA told investors that it abided by a strict set of risk parameters for the Catalyst Hedged Futures Strategy Fund, it breached those parameters and failed to take the required corrective action during a majority of the trading days between December 2016 and February 2017. As alleged, the fund lost hundreds of millions of dollars – approximately 20% of its value – from December 2016 through February 2017 as markets moved against it. The SEC's complaint against Walczak alleges that he told investors that the fund employed a risk management strategy involving safeguards to prevent losses of more than 8%, when in fact no such safeguards limited losses and Walczak did not otherwise consistently manage the fund to an 8% loss threshold.