The SEC announced last week that its much-scrutinized "Aberrational Performance Inquiry" initiative has now produced seven enforcement actions against hedge funds. As previously discussed here, the Aberrational Performance Inquiry initiative "uses proprietary risk analytics to identify hedge funds with suspicious returns. Performance that is flagged as inconsistent with a fund's investment strategy or other benchmarks forms a basis for further investigation and scrutiny."

In the case filed last week, the SEC sued Yorkville Advisors LLC, as well as its president and its CFO, for allegedly enticing investors by misrepresenting the safety and liquidity of the investments made by the hedge funds, and charging excessive fees to the funds based on fraudulently inflated values of the investments. Bruce Karpati, Chief of the SEC Enforcement Division's Asset Management Unit, stated that the agency's analytics tools flagged Yorkville and put it "front and center on our radar screen.” Further inquiry by the SEC revealed "lies to investors and the firm's auditors as well as a scheme to inflate fees by grossly overvaluing fund assets," he added.

The Aberrational Performance Inquiry is a joint effort between the SEC's Division of Enforcement, the Office of Compliance, Inspections and Examinations, and the Division of Risk, Strategy and Financial Innovation.

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