New York-based alternative asset management firm Catalyst Capital Advisors recently paid over $10.5 million in SEC fines for misleading investors about its risk parameters for one of its mutual funds.
The Securities and Exchange Commission investigated Catalyst after the firm lost more than $700 million in just three months from December 2016 to February 2017. This loss represented nearly 20% of the fund’s total assets. According to SEC documents, the firm made representations to investors that an 8% decline in portfolio value would trigger exit positions to properly limit exposure of greater losses to investors. However, the fund had no such measures to limit risk.
As a result, the Catalyst agreed to settle charges with the SEC in early January 2020. The SEC determined that Catalyst “made material misstatements in investor-facing marketing documents” in relation to the firm’s ability to limit investor losses. According to a complaint filed by the SEC, the SEC investigated the Catalyst Hedged Futures Strategy Fund that “invests primarily in options on S&P 500 index futures contracts.” Fines were assessed against Catalyst and its president and CEO, Jerry Szilagyi, for a total of $10.5 million.
Catalyst also oversees a series of additional funds, one of which includes the Catalyst MLP & Infrastructure Fund (ticker symbols: MLXAX, MLXCX, and MLXIX). Vernon Litigation Group is currently investigating claims into this fund due to its alarming performance in recent months. Overall, this Catalyst fund plummeted from over $19 per share in mid-February to nearly $7 per share in mid-March, a decline of over 60% in just one month. Although the stock has since rebounded, this is a dramatic decline for a company that claims to limit risk for investors. The overall value of the fund has declined nearly 80% in the past five years, which is problematic for a fund that claims its objective is “income and capital appreciation.”
Vernon Litigation Group is currently investigating claims on MLXAX, MLXCX, and MLXIX by Catalyst Capital Advisors. If you are an investor in any of these funds and would like to speak with an attorney experienced in hedge fund litigation, please contact us for a confidential, no-cost consultation to see if you might have a legal claim against Catalyst Capital Advisors.
Based in Naples, Florida, the securities attorneys at Vernon Litigation Group have decades of experience in pursuing nationwide investigations of hedge funds, structured products, fixed income products, MLPs, non-traded REITs, and various securities fraud cases and Ponzi schemes.