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Atlanta hedge fund manager accused of fraud

Date: Tuesday, April 6, 2010
Author: Péralte C. Paul, Atlanta Journal Constitution

Investors are suing an Atlanta hedge fund manager for alleged  fraud and unspecified damages because they claim he diverted money to his own use and doctored financial statements. 

Robert L. Duncan, managing partner and founding member of Seaside Asset Management, spent clients' money on himself or transferred it to accounts he controlled or other non-Seaside accounts, according to the 14-page suit, filed last month in Fulton County Superior Court.

Duncan's attorney, Paul N. Monnin, did not respond to a request for comment Monday.

Meanwhile, Habif, Arogeti & Wynne, the Atlanta accounting firm that compiled unaudited financial data and prepared annual tax returns for Duncan's hedge fund, is seeking a temporary restraining order to bar Seaside from using its name.

HA&W said Duncan falsely used the accounting firm's name, logo and signature in client literature to make it appear the firm was Seaside's official auditor and that it prepared the hedge fund's annual financial statements.

The accounting firm, which severed ties with Seaside, also alerted the U.S. Securities and Exchange Commission. Citing SEC policy, an agency spokesman said it doesn't discuss investigations.

The lawsuit follows several high-profile cases of alleged fraud where plaintiffs claim they were conned and lost money after investing funds with money managers. It also comes amid recent discussions at the federal level about bringing hedge funds under more regulatory scrutiny.

The suit against Seaside was sparked by investors who wanted to withdraw some of their funds, said Jeff Willis, who represents the plaintiffs, which include two investment funds, a trust and an individual  Georgia man.

"There were attempts by some of the investors to take their annual redemptions from the fund but they were unsuccessful. The redemptions didn't go through," Willis said. "They were given assurances by Mr. Duncan, but they still didn't go through."

Two plaintiffs say in the suit that Duncan admitted he had "falsified financial statements of Seaside with the intent to conceal his misappropriation of funds from Seaside" since 2005 or 2006. They also allege he admitted fabricating audit reports, "which misstated the true value of the plaintiffs' assets and the performance of their investments with Seaside."

How much the clients may be able to recover remains unclear because it's unknown how much money Duncan's fund actually has. At one point, the fund purported to have as much as $20 million in assets under management.

"We're in the process of tracking the funds, doing an investigation and taking depositions," Willis said. "It's going to take a while to sort out all of the information."