On January 28, 2011, the SEC received a court order freezing the assets of a Stamford, Connecticut-based investment adviser and its principal, Francisco Illarramendi, claiming that both misappropriated over $53 million in investor money and used the funds for their own gain.
The SEC claims that Illarramendi defrauded investors in his managed hedge funds by wrongly diverting the investors’ money into bank accounts controlled by him. Illarramendi then invested the money for his own benefit or for the benefit of the entities that he controlled, rather than for the benefit of the hedge fund investors.
According to David P. Bergers, the SEC’s Boston Regional Office Director, “Illarramendi treated his clients’ money like it was his own, diverting millions of dollars that did not belong to him. He abused his position of trust with his clients and breached his responsibilities as an investment adviser.”
The SEC’s complaint states that Illarramendi is the majority owner of the Michael Kenwood Group LLC — a holding company for, among other entities, investment adviser Michael Kenwood Capital Management LLC. Via this adviser entity, Illarramendi manages several hedge funds, including a fund with over $540 million in assets. The SEC’s complaint claims that Illarramendi misappropriated over $53 million in investor funds out of this particular hedge fund without the investors’ authorization.
The SEC requested an asset freeze because it claimed that Illarramendi was about to place more investments using the investor funds without their authorization. Since the filing of the complaint, the U.S. District Judge for the District of Connecticut has held several hearings relating to the SEC seeking emergency relief against Illarramendi and Michael Kenwood Capital Management. The Court then entered an order freezing the assets of the defendants.