The Securities and Exchange Commission today announced settled charges with two Philadelphia-area men and their investment advisory firm who allegedly defrauded investors in a private equity fund they managed.  Under the settlement, the respondents will owe approximately $6.8 million to the SEC.  The SEC intends to distribute collected money to harmed investors.

According to the SEC’s order instituting administrative proceedings, William B. Fretz, Jr. and John “Jack” P. Freeman orchestrated the fraud through their unregistered adviser, Covenant Capital Management Partners, L.P. and the private equity fund they managed, Covenant Partners, L.P.  Fretz and Freeman sold partnership interests in the fund to family and friends but rather than investing the money as promised, they used it to benefit themselves and a failing business.  Fretz and Freeman funneled more than $1 million to Keystone Equities Group L.P., a failing broker-dealer that they operated and controlled, paid themselves nearly $600,000 in performance fees they had not earned, and used fund assets to repay personal obligations.  Covenant filed for bankruptcy in September 2014. 

“By stealing the fund’s money to prop up their failing business and to repay personal obligations, Fretz and Freeman allowed their own interests to interfere with their fiduciary duties,” said Sharon B. Binger, Director of the SEC’s Philadelphia Regional Office.  “We will vigorously pursue fiduciaries who violate their obligations to their fund for their own self-interest.”

Fretz, Freeman, and CCMP agreed to settle charges that they willfully violated the antifraud provisions of the federal securities laws and SEC antifraud rules.  Covenant Partners, L.P. agreed to settled charges that it violated certain of the same antifraud provisions and rules.  Without admitting or denying the SEC’s findings, the respondents agreed to pay $5.4 million of allegedly ill-gotten gains and prejudgment interest of $353,582.  Fretz and Freeman also agreed to be permanently barred from the securities industry and to pay civil penalties of $500,000 each.  Covenant’s offer of settlement is subject to bankruptcy court approval.

The SEC’s investigation was conducted by A. Kristina Littman, Brian R. Higgins and Scott A. Thompson of the Philadelphia Regional Office and supervised by G. Jeffrey Boujoukos.  The SEC appreciates the assistance of the Financial Industry Regulatory Authority.