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.

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There have been a number of concerning news stories about the investment management industry in the last few weeks that brought back to me all of the concerns that went around the hedge fund industry during the Madoff crisis. And the 2008 financial meltdown. And the 2010 insider trading scandal. And the Petters Ponzi scheme.

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By Cliff Stanton

Advisors have expressed frustration with funds in this category. Is that warranted?

In recent years, mainstream investors have increasingly embraced long-short equity mutual funds. Fund launches only began to accelerate in the aftermath of the financial crisis, so investors’ collective experience with these funds has been largely acquired during an equities bull market.

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