Karen the “Supertrader” (Part 2)

Last time, I explained the delivery of Karen “the Supertrader” Bruton to the trading masses. On May 31, 2016, the SEC made a press release about the 34-page complaint.

Here are some excerpts:

     > Each month, Hope [Advisers, which is owned by Bruton]
     > caused the Funds to make certain “Scheme Trades” that
     > had the purpose and effect of realizing a large gain
     > in the current month while effectively guaranteeing
     > a large loss would be realized early the following
     > month. In essence, these trades continuously
     > converted any realized losses into realized gains in
     > the current month, and losses which would be realized
     > in subsequent months, except that they would be
     > continually deferred by the Defendants engaging in
     > additional Scheme Trades. The Defendants…
     > intentionally sized the Scheme Trades such that the
     > Funds realized a profit every month… without the
     > fraudulent Scheme Trades, Hope would have received
     > almost no incentive fees from at least October 2014
     > through the present. Instead, Hope extracted millions
     > of dollars in incentive fees. In recent months,
     > Hope has been using the Scheme Trades to avoid
     > realization of more than $50 million in losses, while
     > still earning large monthly incentive fees…

     > Of the 10% incentive fee paid to Hope by the HI [Hope
     > International] Fund, Bruton divided the fee nearly
     > equally among herself and two other Hope employees,
     > after paying salaries of other employees and expenses
     > for Hope…

     > If those unrealized losses had been factored in, as
     > required by the operating agreement, Hope would have
     > been entitled to no fees. Instead, Hope collected
     > over $1 million worth of fees during that period…
     > Bruton paid herself a significant portion of the fee
     > income…

     > For example, in October of 2014, Hope experienced
     > massive trading losses as a result of volatility in
     > the market… [Her funds] collectively ended the month
     > with unrealized losses of approximately $100 million,
     > most of which resulted from the October trading losses.
     > Nevertheless, Hope reported to investors that the
     > Funds had millions of dollars’ worth of “realized”
     > gains in October and collected incentive fees of more
     > than $600,000… Despite the massive trading losses
     > in both Funds that month, Bruton caused Hope to pay
     > her over $220,000 in early November 2014 for her
     > October “performance…” The Defendants never told
     > the Funds’ investors about the Scheme Trades… The
     > Defendants never told the Funds’ investors that
     > Hope was causing the Funds to make trades for the
     > primary purpose of avoiding realization of losses.

I will continue in the next post.