SEC Reaches First Deferred Prosecution Agreement with an Individual

SEC Reaches First Deferred Prosecution Agreement with an Individual

 The Securities and Exchange Commission has reached its first deferred prosecution agreement with an individual.

According to the SEC’s DPA with Scott Herckis: Herckis served as administrator for Connecticut-based Heppelwhite Fund LP, which was founded and managed by Berton M. Hochfeld.  With voluntary and significant cooperation from Herckis, the SEC filed an emergency enforcement action against Hochfeld in November 2012 for allegedly misappropriating more than $1.5 million from the hedge fund and overstating its performance to investors.  The SEC said that its action froze the hedge fund’s assets and Hochfeld’s personal assets, which now are being used to compensate allegedly defrauded investors.  Last month, a federal court judge approved a $6 million distribution to Heppelwhite investors.

“We’re committed to rewarding proactive cooperation that helps us protect investors, however the most useful cooperators often aren’t innocent bystanders,” said Scott W. Friestad, an associate director in the SEC’s Division of Enforcement.  “To balance these competing considerations, the DPA holds Herckis accountable for his misconduct but gives him significant credit for reporting the fraud and providing full cooperation without any assurances of leniency.”

According to the DPA, Herckis served as the fund’s administrator from December 2010 to September 2012, when he resigned and contacted government authorities with his concerns about Hochfeld’s conduct and certain discrepancies in Heppelwhite’s accounting records.  The SEC said that Herckis voluntarily produced voluminous documents and described to the SEC how Hochfeld was able to perpetrate his alleged fraud.  As a result, the SEC said, it was able to file the emergency action within weeks.

Under the terms of the DPA, which states that Herckis aided and abetted Hochfeld’s securities law violations, Herckis must comply with certain prohibitions and undertakings.  Herckis cannot serve as a fund administrator or otherwise provide any services to any hedge fund for a period of five years, and he also cannot associate with any broker, dealer, investment adviser, or registered investment company.  The DPA requires Herckis to disgorge approximately $50,000 in fees he received for serving as the fund administrator, which will be added to the Fair Fund that has been created to help compensate Heppelwhite investors.  The SEC said that a second round of distributions from the Fair Fund is expected after additional money is collected for harmed investors through the sale of Hochfeld’s personal assets, including a collection of antiques he paid for with allegedly stolen funds.

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