Key Takeaways
- • Chatham Asset Management LLC and founder Anthony Melchiorre agreed to pay approximately $19.3 million in combined civil penalties, disgorgement, and prejudgment interest to resolve SEC charges over improper fixed-income trading, without admitting or denying the findings.
- • The SEC alleged that between 2016 and 2018, one Chatham-advised client sold American Media, Inc. (AMI) bonds while another bought the same bonds through various broker-dealers, with Chatham and Melchiorre proposing trade prices that raised the price of AMI bonds relative to similar securities.
- • The pricing inflated client fund net asset values during the period, generating additional management fees, according to the SEC.
- • Melchiorre, who owned roughly 70 percent of the firm and was primary portfolio manager for all Chatham clients from 2016 to 2018, faces findings that the firm violated Section 206(2) of the Investment Advisers Act of 1940 and aided and abetted violations of the Investment Company Act of 1940.
- • Chatham stated the trading occurred more than four years earlier in funds that have since closed, and that it relied on an independent compliance consultant.
Summary
Chatham Asset Management LLC, a Chatham, New Jersey-based hedge fund, and its founder Anthony Melchiorre have agreed to pay approximately $19.3 million to resolve an SEC enforcement action concerning the trading of fixed-income securities. The settlement comprises $11 million in disgorgement, approximately $3.4 million in prejudgment interest, and civil penalties of $4.4 million for the firm and $600,000 for Melchiorre. The parties consented to the SEC order without admitting or denying its findings, according to Patch, which first reported the penalty.
According to the SEC order, between 2016 and 2018 one Chatham-advised client sold bonds issued by American Media, Inc. (AMI), now known as a360 Media LLC, while another Chatham-advised client purchased the same bonds through various broker-dealers. AMI was a print media publisher whose long-running titles during the period included US Weekly and The National Enquirer. The SEC said Chatham and Melchiorre proposed the trade prices, which effectively raised the price of AMI's bonds relative to similar securities. That increase lifted the net asset values of the clients' funds during the period, resulting in higher fees.
The SEC found that Chatham and Melchiorre violated Section 206(2) of the Investment Advisers Act of 1940 and aided and abetted and caused violations of the Investment Company Act of 1940. Melchiorre, 55, owned roughly 70 percent of the company during the relevant period, serves as managing member of the general partner entity for each of the funds, and was the primary portfolio manager for all Chatham clients from 2016 to 2018.
SEC deputy enforcement director Sanjay Wadhwa said the agency remains vigilant in addressing misconduct in the marketplace, including in fixed-income markets, where investments can be less liquid. Chatham told Patch that it sought and followed advice from an independent compliance consultant regarding trade execution, and that the consultant reviewed the firm's trading annually without flagging issues. The firm also noted the trading occurred more than four years earlier in funds that have since been closed, and said the matter is resolved.
According to the SEC order, between 2016 and 2018 one Chatham-advised client sold bonds issued by American Media, Inc. (AMI), now known as a360 Media LLC, while another Chatham-advised client purchased the same bonds through various broker-dealers. AMI was a print media publisher whose long-running titles during the period included US Weekly and The National Enquirer. The SEC said Chatham and Melchiorre proposed the trade prices, which effectively raised the price of AMI's bonds relative to similar securities. That increase lifted the net asset values of the clients' funds during the period, resulting in higher fees.
The SEC found that Chatham and Melchiorre violated Section 206(2) of the Investment Advisers Act of 1940 and aided and abetted and caused violations of the Investment Company Act of 1940. Melchiorre, 55, owned roughly 70 percent of the company during the relevant period, serves as managing member of the general partner entity for each of the funds, and was the primary portfolio manager for all Chatham clients from 2016 to 2018.
SEC deputy enforcement director Sanjay Wadhwa said the agency remains vigilant in addressing misconduct in the marketplace, including in fixed-income markets, where investments can be less liquid. Chatham told Patch that it sought and followed advice from an independent compliance consultant regarding trade execution, and that the consultant reviewed the firm's trading annually without flagging issues. The firm also noted the trading occurred more than four years earlier in funds that have since been closed, and said the matter is resolved.
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