Investors who lost millions to a former hedge fund manager who pleaded guilty to securities fraud last year have filed a civil suit against the financier and the fund’s administrator.
The lawsuit filed by more than two dozen individuals, mostly in the Carolinas, seeks compensatory and punitive damages from Stephen Maiden and SS&C Fund Services, part of a Connecticut-based financial services company.
The complaint alleges Maiden’s scheme lost money for friends, former business school classmates, neighbors and even groomsmen from his wedding. He already faces a maximum sentence of 20 years in prison and up to a $250,000 fine for a fraud that cost investors at least $8.9 million.
The suit also details new allegations against SS&C, saying the hedge fund administrator gave investors assurance about the legitimacy of the assets in the fund and the accuracy of its financials. SS&C papered over “accounting infirmities” at the fund and made a choice to stop “documenting and verifying” the fund’s assets, the complaint states.
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SS&C “profited from its willfull blindness” because its fees were based on the “wildly inflated” value of the fund, according to the complaint. The suit was filed last month in Mecklenburg County Superior Court and moved to N.C. Business Court this week.
“When my clients invested, they believed that safeguards were in place at the fund to protect the integrity of those investments,” said Charlotte attorney Gary Mauney, who is representing the investors. “The complaint describes how those safeguards failed.”
Maiden and SS&C general counsel Paul Igoe declined comment. Maiden, who awaits sentencing in his federal case, lives in the Washington, D.C., area, according to his LinkedIn page.
Mauney said the government has told him Maiden has no assets, but he said the civil case can help determine whether he can pay any damages.
Maiden, 41, launched the Maiden Capital Opportunity Fund in 2006 with investments from individuals in Charlotte and elsewhere, according to federal court documents. Hedge funds are loosely regulated investments for the wealthy.
By February 2009, Maiden had lost a substantial amount of investor funds on large investments in a small company and in an international arbitrage investment fund, according to the documents. To keep investors from pulling their money, he began sending out false statements showing that the fund was doing well and making money, the documents allege. By July 2012, Maiden Capital was insolvent.
The new complaint alleges that SS&C encountered numerous red flags about Maiden’s fund but helped him “perpetuate and cover up the Ponzi scheme.”
For example, in an email cited in the complaint, an SS&C representative asked Maiden in 2010 about certain cash movements, and Maiden responded that he was taking money out of the fund to reimburse himself for paying SS&C’s quarterly fee. The email traffic showed SS&C asking no questions about why he was paying this fee out of his own pocket, rather than using fund resources, according to the suit.
In June 2012, as the fund was collapsing, SS&C was aware that the average balance of Maiden’s general partner account was $305.77, according to the complaint. The account reflected no business expenses, only his car payment, natural gas bill and multiple charges to Chick-fil-A, a local pub and other restaurants, according to the suit.
SS&C, according to the suit, never notified investors that anything was wrong with the fund.