GLG Partners Inc., the hedge-fund firm owned by Man Group Plc (EMG), has agreed to pay about $9 million to settle U.S. regulatory claims that it overvalued a coal-mining asset purchased by former money manager Greg Coffey.
GLG’s inflated valuation of the mining company from 2008 through 2010 prompted its investors to pay excessive management and administration fees of about $7.8 million, the Securities and Exchange Commission said in an order filed yesterday. The London-based hedge-fund firm agreed to reimburse those fees to its clients and pay fines totaling $750,000, the SEC said.
“Investors depend upon fund advisers to have proper controls in place to ensure that valuations and fees are not inflated,” Antonia Chion, an associate director in the SEC’s enforcement division, said in a statement.
The SEC didn’t name the mining company at issue in the order. The company was Sibanthracite Plc, according to a person with direct knowledge of the matter who asked not to be identified because the information wasn’t publicly disclosed.
The investment in Sibanthracite was one of Coffey’s last before he resigned in 2008, according to two people with knowledge of the matter who asked not to be identified because his fund was private. GLG clients were left with the stake in the Siberian mining company after the firm segregated some of his hardest-to-sell assets and barred clients from pulling their money. GLG set up the side-pocketed fund to avoid having to sell holdings at deep discounts during the 2008 credit crunch.
“GLG is pleased that this matter is resolved and remains committed to maintaining robust policies, procedures and practices in line with market conventions,” said Sara Evans, a spokeswoman for GLG at RLM Finsbury in New York.
One of Coffey’s hedge funds agreed to buy the 25 percent stake in Sibanthracite in December 2007 for $210 million, the SEC said. Eleven days after the acquisition closed in March 2008, GLG valued the holding at $425 million, based on an estimate from one of its analysts about rising coal prices and that the company would be able to quadruple production within five years, according to the SEC’s order. GLG planned to sell its stake through a “near-term” initial public offering.
Coffey, 42, said yesterday it’s not appropriate for him to comment on the SEC settlement considering that he was no longer at GLG when the alleged wrongdoing occurred.
By November 2008, the $425 million valuation no longer held up as Sibanthracite had dropped its IPO plans, coal prices had plunged and emerging-market stocks had fallen, according to the order. GLG didn’t tell its independent pricing committee about it because of “internal controls failures,” the SEC said.
GLG used that valuation through November 2010, though a financial firm it hired determined earlier that year that the stake was worth no more than $284 million, the SEC said. That firm’s calculations weren’t shown to the independent pricing committee at meetings that year in September, October and November, according to the order.
Man Group, the world’s largest publicly traded hedge-fund firm, bought GLG in 2010 for $1.6 billion. Man Group is based in London.
Coffey left GLG in October 2008 to join Louis Bacon’s Moore Capital Management LLC. He had been GLG’s top performer, managing more than $7 billion and winning industry awards after his main fund climbed 51 percent in 2007 and 60 percent in 2006 amid a rally in emerging markets.
He retired from New York-based Moore and the hedge-fund industry in October 2012 after losing money for two years.
To contact the reporter on this story: Jesse Westbrook in London at email@example.com