The Securities and Exchange Commission has charged former hedge fund manager Gary Marks for negligently misrepresenting the level of correlation and diversification within hedge funds run by his firm, Sky Bell Asset Management.

Sky Bell Asset Management was formerly registered with the SEC as an investment advisor. Through the firm, Marks recommended and managed various funds of hedge funds, including the Agile Sky Alliance Fund, which was co-managed with the Agile Group; PipeLine Investors; Night Watch Partners, and Sky Bell Offshore Partners, the complaint says.

As of December 31, 2007, there was around $152 million invested in this group of funds, but many of the underlying funds suffered large losses in 2008 and the Sky Bell hedge funds suspended redemptions in the spring of that year, according to the complaint, which was filed in the Northern District of California.

Between at least 2005 and September 2007 Marks misrepresented the funds to investors and also made unsuitable recommendations to some advisory clients, such as that they invest most of their investment portfolio in Sky Bell funds, the SEC alleges.  

A Hawaii resident, Marks was chief executive of the firm and a key member of the portfolio team there. He also held a Series 65 securities license during the relevant period to the SEC’s case. The firm registered with the SEC in 2004 and withdrew its registration on October 23, 2008.

Clients tended to be accredited investors looking for significant capital protection and diversification, the Commission’s complaint states.

Marks did not admit or deny the charges but consented to the entry of a proposed final judgment ordering him to pay disgorgement of $321,702, a penalty of $100,000, and prejudgment interest. This is now subject to the approval of the district court.