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Securities and Exchange Commission (SEC) Brings Lawsuit Against Hedge Fund Manager for Defrauding Investors

On April 4, the Securities and Exchange Commission filed a complaint against Matthew D. Sample, founder of hedge fund Lobo Volatility Fund, LLC, for fraudulently raising approximately $1 million from five investors. According to the complaint, Sample raised the funds between October 2009 and June 2012 by selling Lobo limited liability units to investors and misrepresented that he would use investors’ money to trade options by employing a propriety trading strategy. 

The SEC alleged that Sample diverted approximately one-third of the funds for personal use and payments to other investors. The complaint further alleged that Sample’s trading strategy failed, causing the loss of the remaining funds, and that Sample falsely informed investors that he was trading profitably and that the funds were being held in capital accounts. According to the SEC, after one investor made repeated requests to withdraw $500,000, Sample provided the investors with false excuses as to why he could not make a distribution.   

The SEC asserts that the alleged acts violate Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), (2) and (4) of the Investment Advisers Act. Sample consented to a permanent injunction against further violations, without admitting or denying the allegations. The SEC seeks disgorgement of the illicitly obtained funds and civil penalties. 

©2020 Katten Muchin Rosenman LLPNational Law Review, Volume IV, Number 108


About this Author


Margaret McQuade concentrates her practice on matters of employment law and executive compensation, with an emphasis on negotiating and drafting a wide range of agreements, and mediating and arbitrating claims on behalf of both employees and employers.