The SEC has filed an action against an unregistered hedge fund manager whose sole clients were non-US investors for making investments inconsistent with the PPM.  The SEC alleges that the manager used investor funds to make private equity investments, which were not described in the PPM.  Also, the manager executed the investments by moving money through related entities.  The SEC’s complaint indicates that the largest investor (90% of assets) was aware that funds were used for private equity investments.

OUR TAKE: This case demonstrates the reach of the SEC’s asserted jurisdiction and its willingness to use its enforcement power.  In this case, although the complaint does not allege any investor loss, the SEC has taken action against an unregistered adviser to unregistered funds with no US investors.  Moreover, it is unclear whether the investments made were truly contrary to the PPM, which described a fairly broad investment mandate.  It appears from the complaint that the biggest mistake made by the fund manager was to funnel the funds through affiliated entities in order to make the private equity investments. 

http://www.sec.gov/litigation/complaints/2011/comp21828.pdf