The Securities & Exchange Commission today announced settled charges against Theorem Fund Services LLC (TFS), a fund administrator based in Boca Raton, Florida, for failing to respond to red flags relating to a fraud against a private fund & its investors.

According to the SEC’s order, TFS provided administration services to a fund managed by EIA All Weather Alpha Fund Partners & Andrew M. Middlebrooks, both of whom the SEC charged in May 2022 with fraud for allegedly engaging in a scheme that included the misappropriation & misuse of investors’ funds over a five-year period. According to the order, during TFS’s engagement, the fund suffered significant losses as a result of trading by EIA & Middlebrooks; however, TFS, at the direction of EIA & Middlebrooks, calculated the Net Asset Value, which did not recognize the losses, & sent investors account statements that materially overstated the value of their investments.

“Fund administrators are important gatekeepers in the private fund space,” said Andrew Dean, Co-Chief of the SEC Enforcement Division’s Asset Management Unit. “Here, TFS failed to live up to its gatekeeper responsibilities & distributed inaccurate account statements to investors despite clear red flags.”   

The SEC’s order finds that TFS was a cause of certain of EIA’s & Middlebrooks’ violations of the Securities Act of 1933 & of the Investment Advisers Act of 1940 & Rule 206(4)-8(a)(1) thereunder. TFS agreed, without admitting or denying the SEC’s findings, to a cease-&-desist order & to pay a civil penalty of $100,000. In addition, TFS agreed to pay disgorgement of $18,000 & prejudgment interest of $4,271.

The SEC’s ongoing investigation is being conducted by Heather E. Marlow & Brian Fitzpatrick of the Asset Management Unit & Marc Ricchiute & Tracy Bowen of the Denver Regional Office, with assistance from Daniel Faigus of the Division of Examinations’ Private Funds Unit & trial counsel Zachary Carlyle of the Denver Regional Office. The matter was supervised by Kimberly Frederick of the Asset Management Unit.