WASHINGTON, D.C. – Jerry Szilagyi, CEO of Catalyst Capital Advisors LLC, and portfolio manager Edward Walczak are facing charges of fraud and misleading investors, the Commodity Futures Trading Commission (CFTC) announced today. The charges stem from alleged misrepresentations regarding the risk management practices of the Catalyst Hedged Futures Strategy Fund.
The CFTC issued an order against Catalyst Capital Advisors LLC and Szilagyi, requiring the firm to pay a $1.3 million civil monetary penalty and $8,908,481 in disgorgement, including pre-judgment interest. Szilagyi himself is ordered to pay a $300,000 civil monetary penalty. Both are subject to a cease and desist order for further violations of the Commodity Exchange Act (CEA) and CFTC regulations.
According to the CFTC, Catalyst and its representatives made materially misleading statements about the fund’s risk management. Specifically, the firm falsely claimed that stop-loss measures were in place to limit losses, when in reality, no such measures existed. Furthermore, Catalyst represented that a dedicated risk manager monitored the fund’s risk metrics daily, a claim the CFTC alleges was untrue.
Szilagyi is held liable as a control person for Catalyst’s violations. Separately, the CFTC filed a complaint in the U.S. District Court for the Western District of Wisconsin against Edward Walczak, alleging that he fraudulently led investors to believe the fund was a safer investment than it was. The complaint alleges Walczak falsely stated he took steps to prevent losses exceeding 8 percent of the fund’s value.
The CFTC alleges that Walczak routinely failed to hedge as he claimed, resulting in at least $500,000,000 in investor losses between November 2014 and February 2017. The Securities and Exchange Commission (SEC) also issued similar charges against Catalyst and Szilagyi and filed a complaint against Walczak in federal court today.
“We are committed to protecting investors—including those who invest in our markets through mutual funds,” said CFTC Director of Enforcement James McDonald. “When companies or individuals make misleading statements about the risks of investing in their products, they will be held accountable.”
Source: CFTC.gov
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