SEC Sues Commonwealth Advisors Inc. for Securities Fraud

The Securities And Exchange Commission (“SEC”) announced that it has filed suit against Commonwealth Advisors Inc.  in Louisiana District Court.  According to the SEC

The SEC alleges that Walter A. Morales and his firm Commonwealth Advisors Inc. caused the hedge funds they managed to buy the lowest and riskiest tranches of a collateralized debt obligation (CDO) called Collybus. They sold mortgage-backed securities into the CDO at prices they had obtained four months earlier while knowing that the RMBS market had declined precipitously in the meantime. As the CDO investments continued to perform poorly, Morales instructed Commonwealth employees to conduct a series of manipulative trades between the hedge funds they advised (called cross-trades) in order to conceal a $32 million loss experienced by one of the funds in its Collybus investment. Morales and Commonwealth lied to investors about the amount and value of mortgage-backed assets held in the hedge funds, and they created phony internal documents to justify their false valuations

S.E.C. v. Commonwealth Advisors Inc., No. 12-00700 ( M.D. La. Nov. 8, 2012).