SUMMIT, NJ-Judge Lewis A. Kaplan of the Southern District of New York has issued an order granting a preliminary injunction against Beacon Hill Asset Management, based here. The action follows a motion by the Securities and Exchange Commission relating to several funds operated by the hedge fund manager. Beacon Hill has consented to the order, but would not provide further comment.

Earlier this month, the SEC had filed a complaint with the court alleging that Beacon Hill mismanaged three “feeder” hedge funds–Bristol Fund Ltd., Safe Harbor Fund LP and Milestone Plus Partners LP–and one “master” fund, Beacon Hill Master Ltd., through which the feeder funds traded. The funds mostly invested in the mortgage-backed securities markets on a leveraged basis.

Specifically, the SEC charged that for the recently ended quarter, Beacon Hill “reported net asset values and corresponding returns to fund investors that it knew or should have known were materially overstated,” according to the complaint. Among other things, the SEC alleges, Beacon Hill reported on Oct. 8 that the Safe Harbor and Bristol funds had suffered losses estimated at 25% during the month of September. On Oct. 17, however, the fund manager reported losses of 54%, or more than double the earlier amount, including losses that hadn’t been reported during prior periods.

As a result, according to the SEC, Beacon Hill violated certain sections of the Investment Advisers Act of 1940, which bars transactions, practices and other courses of business that operate “as a fraud or deceit upon investment advisory clients and prospective clients.”

The court’s injunction brings with it several requirements for Beacon Hill. First, the firm and its hedge funds have to report back to the court within 10 days that Beacon Hill is no longer managing the funds, and that a new investment manager is in place. Also, no redemptions, withdrawals, distributions or other payments can be made without the court’s okay.

The new investment manager, meanwhile, will have to file periodic reports with the court, as well as with the SEC and the various investors. Finally, Beacon Hill must preserve all documents relating to the case and is required to “cooperate fully to enable the new investment manager to perform its duties.”

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