SEC Charges Catalyst Capital Advisors and PM Over Misrepresenting Risk in Mutual Fund
Posted on 01/27/2020
The U.S. Securities and Exchange Commission (SEC) disclosed charges against a New York-based Catalyst Capital Advisors LLC (CCA) and its President and Chief Executive Officer, Jerry Szilagyi. The charges stem from misleading investors about the management of risk in a mutual fund. Catalyst Capital Advisors and its CEO agreed to pay a combined US$ 10.5 million to settle the charges.
Furthermore, the SEC 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.
According to the press release, “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.”
The Catalyst Funds are distributed by Northern Lights Distributors, LLC.
Jerry Szilagyi was President of USA Mutuals Advisors, Inc., an investment advisory firm, from 2011 to 2016.
