The Securities and Exchange Commission has obtained an asset freeze against a money manager operating in the Chicago area and his hedge fund advisory firm, which the government organization has charged with lying to prospective investors.

The SEC alleges that Belal Faruki of Aurora, IL, and his advisory firm Neural Markets solicited highly sophisticated individuals to invest in the Evolution Quantitative 1X Fund, a hedge fund they managed that supposedly used a proprietary algorithm to carry out an arbitrage strategy involving trading in liquid exchange-traded funds (ETFs).

“Faruki and Neural Markets falsely represented the existence of investor capital and that trading was generating profits when, in fact, losses were being incurred. They defrauded at least one investor out of $1 million before confessing the losses, and were soliciting other wealthy investors,” the SEC said in a statement.

The firm misrepresented facts such as that wealthy investors had so far put $5 million into the fund, when in fact there was only one investor in the fund. He also distorted the fund’s performance track record, and also falsely claimed the fund had a top-tier auditor, according to the SEC’s complaint. Faruki also allegedly told investors he had invested his own money in the fund, when this wasn’t the case.

The lone investor in the fund, who has lost around $1 million, has tried to redeem his money unsuccessfully.

The SEC filed its complaint under seal on 10 August 2011 and a temporary restraining order and asset freeze was granted that day. The court lifted the seal order on 29 August 29, and the terms of the temporary restraining order will stay in place until the the case is resolved.