• SEC Initiates Enforcement Action Against Hedge Fund Adviser
  • February 5, 2014 | Authors: Peter D. Fetzer; Terry D. Nelson
  • Law Firms: Foley & Lardner LLP - Milwaukee Office ; Foley & Lardner LLP - Madison Office
  • The SEC initiated an administrative proceeding on January 8, 2014 against Patrick G. Rooney (“Rooney”), the sole owner and managing partner of Solaris Management LLC (“Solaris Management”), for various violations alleged by the SEC, including among other things, the “anti-fraud” provisions under the Investment Advisers Act of 1940 by Rooney and Solaris Management.

    Solaris Management, an unregistered investment adviser, has been since 2003, the general partner and investment adviser to the Solaris Opportunity Fund, LP (“Solaris Fund”), a privately offered investment fund. Rooney, on behalf of Solaris Management, was responsible for managing the assets of the Solaris Fund and its offshore counterpart, Solaris Offside Fund.

    Last month, a judgment was entered against Rooney enjoining him from future violations of the anti-fraud provisions under the Advisers Act and under the Securities Act of 1933. Rooney consented to the issuance of the injunction (see also SEC v. Patrick G. Rooney, et al, Civil Action No. 11-CV-8264, USDC for the ND of Illinois).

    The SEC’s complaint against Rooney alleges that he and Solaris Management materially changed the investment strategy of the Solaris Fund without advanced notice to investors and in opposite to what was described in the private placement offering materials of Solaris Fund. According to the SEC, Rooney caused all of the assets of Solaris Fund to be invested in Posetron Corp., an entity that was financial impaired and for which Rooney was chairman of the board and an investor. Rooney did not disclose the investments in Posetron to Solaris Fund investors for over a four year period and never disclosed to the investors the fact that by being an officer and shareholder in Posetron, had a conflict of interest. The investment in Posetron Corp. by the Solaris Fund resulted in Solaris Fund having all of its assets invested in a cash-poor company, and was a highly illiquid investment.

    The SEC administrative hearing in the matter will be scheduled in the near future, to determine if the SEC’s allegations are true, and if so, the administrative penalties for committing the alleged violations.