By Ann C. Logue
This week, the SEC alleged that the Detroit-based EIA All Weather Alpha Fund I was actually a Ponzi scheme. The fund’s manager is charged with falsifying just about everything involved with the fund, from its performance to its audit statements. When people used this information to make investments, the SEC says that the money was instead used to pay back older investors or pay the fund manager’s personal expenses.
The alleged misrepresentation was epic, too. The SEC says that the fund manager, Andrew M. Middlebrooks claimed performance of 2,500% between 2017 and 2022 while losing $27 million during that period. Rather than admitting that, he raised about $9 million from new investors to fund redemptions, his lifestyle, and his wife’s business, ShopStyleShark.com.
Middlebrooks operates other funds that were not included in the charges but were listed as relief defendants. It seems unlikely that those funds were managed appropriately, but you never know. ShopStyleShark.com is also listed as a relief defendant. This week, the SEC also announced proposed amendments to fund-naming rules. The concern is that funds are given names that indicate an investment style that is different from how the fund is managed. Growth funds should be managed for growth and value funds should be managed for value. An all-weather alpha fund should be managed for all-around alpha and not be a front for a Ponzi scheme. The SEC’s current name rule says that a fund should represent the named style 80% of the time, and the proposed changes came about because it would seem that some funds are flouting that.
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