(Bloomberg) — Mass Ave Global Inc. and its co-founder Winston Feng agreed to pay a combined $600,000 in fines to settle US Securities and Exchange Commission proceedings for “making false and misleading statements” to investors in its flagship Asia hedge fund, according to the regulator.
The New York-based company and Feng are to pay civil penalties of $350,000 and $250,000 respectively, the regulator said in a statement posted on its website on Wednesday. Feng, the 34-year-old chief executive officer, is also suspended for 12 months from industry-related work, the regulator added. Ray Guo, Mass Ave’s other co-founder, wasn’t identified in the SEC order and didn’t personally draw a sanction.
Mass Ave’s rise and fall within less than four years caught widespread attention in the Asia hedge fund industry a year ago, highlighting governance issues in the often opaque industry.
The company was founded in December 2019 and grew assets to a peak of $1.2 billion around the final quarter of 2022. For that, it was initially touted as a success story when the pandemic grounded investors and frustrated hedge fund peers’ efforts to raise capital. China’s regulatory crackdown on industries from real estate to technology and after-school tutoring also put a damper on performances and capital raising of China-focused funds.
Feng had worked for Goldman Sachs Group Inc. and Holocene Advisors, the multibillion dollar hedge fund firm founded by former Citadel equities head Brandon Haley. His other stint was at Point72 Asset Management LP, according to his LinkedIn.
About one-third of Mass Ave’s investments were in Chinese companies, the rest split between the rest of Asia and other regions around the world, the SEC order said. Its investments outside China drew on how the world’s second-largest economy could affect those companies. The fund traded stocks, options, swaps and held some illiquid assets.
An unidentified company officer began an internal review in late June 2022, revealing some investors received holdings and exposure information about the fund that was not reviewed and approved by the firm’s compliance team. In some cases, they were based on information looked at and approved by its compliance team but subsequently modified by Feng, the SEC said.
The findings led to an internal probe. At its conclusion in January 2023, the firm informed investors of the inaccuracies and inappropriate disclosure, promising enhancement to procedures in the preparations of such documents.
The SEC found that the company sent 22 monthly updates known as “tear sheets” to at least 88 investors that contained “materially false and misleading” information on exposure. Some positions reported in those documents were not actual holdings in the reporting period.
Three fund “snapshot” documents dated between February 2020 and April 2021 that were sent to at least 17 investors also contained misleading position data, the SEC said. This included positions not held in the period or wrong amounts. On at least one occasion, the firm sent misleading information on the fund’s top 10 profit contributors and losing trades.
Guo, who was identified as “co-founder 2” and Mass Ave’s head of research in the SEC document, had been running an undisclosed fund in China since at least September 2022, the SEC order said.
That fund would have “necessarily diverted his time and attention,” it added. The two funds also traded overlapping markets. Feng learned of the possibility of the Guo’s parallel fund as early as June 2022. Mass Ave failed to disclose Guo’s fund and the resulting conflict of interest to all investors.
Feng and Guo didn’t respond to requests for comment.
Investors asked to redeem more than half the firm’s assets by February 2023, after learning about the findings of the internal probe. Guo resigned and the officer who initiated the internal review was fired. In response, the firm halted all withdrawals.
It announced in March 2023 it would shutter all 16 of its advised funds, the SEC said. It has yet to complete the wind-down as of May 6.
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