SEC Charges Firm and Portfolio Manager for Misrepresenting Risk


By Attorney Jared Levy

We are currently investigating claims against Catalyst Capital Advisors LLC for alleged misrepresentations regarding risk management in a mutual fund.

The Securities and Exchange Commission recently announced charges against Catalyst (an investment advisory firm) and its Chief Executive Officer, Jerry Szilagyi. Catalyst and Szilagyi agreed to pay a total of $10.5 million to settle the charges. The SEC also filed a complaint against Senior Portfolio Manager, Edward Walczak, for misrepresenting how he would manage the fund’s risks.

According to the SEC’s settled order, Catalyst represented that it followed strict risk parameters for the Catalyst Hedged Futures Strategy Fund. But the SEC’s settled order found that Catalyst failed to follow these parameters between December 2016 and February 2017. The SEC alleged that during this time, the fund lost hundreds of millions of dollars, dropping 20 percent. The SEC alleges that Walczak stated that the fund used a risk-management strategy that prevented losses over 8%, even though no such strategy was employed.

C. Dabney O’Riordan, co-chief of the SEC Enforcement Division’s Asset Management Unit, stated: “Fund managers must be truthful and transparent when describing their risk management procedures.”

And the SEC’s chief of the division’s Complex Financial Instruments Unit, Daniel Michael, stated: “Here, [Catalyst’s] misrepresentations, and Walczak’s alleged departure from his stated approach to managing risk, deprived investors of accurate information about an important aspect of the fund’s management.”

The $10.5 million that Catalyst and Szilagyi paid will be placed in a fund for distribution to affected investors. Investors, however, may not be made whole from these distributions. If you have suffered losses in the Catalyst Fund, please contact Morgan & Morgan’s securities and investor attorneys at 888-871-0783 for a free consultation.

Morgan and Morgan’s securities attorneys are part of the firm’s Business Trial Group. The Business Trial Group helps investors recover their monetary losses on a contingency basis. We are only paid if we successfully recover money for you. We regularly fight for justice against brokerage firms, investment advisory firms, and banks, and have helped investors recover tens of millions of dollars of investment losses.

The Business Trial Group is part of the largest contingency law firm in the nation, with more than 500 lawyers and 50 offices.