Fund Administrators Settle with SEC for Causing Fund Advisers' Violations

ADMINISTRATIVE PROCEEDING
File No. 3-20030

September 18, 2020 - The Securities & Exchange Commission today announced that Northern Trust Hedge Fund Services LLC and Northern Trust Global Fund Services Cayman Limited agreed to settle charges for their role in causing L-R Managers, LLC's and Donald S. LaGuardia, Jr.'s fraud against privately managed funds and their investors.

On June 24, 2019, the SEC charged LaGuardia with fraud, alleging that, through his unregistered investment adviser, L-R Managers, LaGuardia defrauded the LR Global Frontier Funds and their investors beginning at least as early as 2013 through mid-2017.

According to today's order, from approximately January 1, 2016 until August 30, 2017, Northern Trust provided fund administration services for the LR Global Frontier Funds, and before providing these services, Northern Trust employees identified, but failed to adequately escalate, concerns regarding L-R Managers and LaGuardia (the Advisers). The order also finds that during its engagement, Northern Trust permitted the Advisers to withdraw money from the funds without support and followed the Advisers' instruction to account for these withdrawals as part of a receivable L-R Managers owed the funds. In addition, the order finds that, at the Advisers' direction, Northern Trust personnel accounted for this receivable, among other items, as assets of the funds despite having information that should have caused them to question whether L-R Managers would be able to repay these amounts. The order finds that, as a result of this accounting, Northern Trust reported materially inflated capital account balances and returns on monthly statements to the funds' investors.

Without admitting or denying the findings, Northern Trust consented to the entry of the cease-and-desist order finding that the fund administration entities caused L-R Managers' and LaGuardia's violations of Sections 206(2) and (4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder and agreed to pay a civil penalty of $150,000 on a joint and several basis. In addition, Northern Trust Hedge Fund Services agreed to pay disgorgement of $15,076 and prejudgment interest of $2,553.

The SEC's investigation was conducted by Alison Conn, Kerri Palen, and Judith Weinstock with assistance from Patricia Schrage and Alistaire Bambach and was supervised by Sanjay Wadhwa, all of the New York Regional Office.