SEC fine for Soros adviser

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The Independent Online
AN ADVISER to George Soros's Quantum funds, who will play a key role in his latest fund, has been involved in a dollars 2.1m (pounds 1.4m) settlement with the US Securities and Exchange Commission following allegations of insider trading.

A document issued for the launch of the Quantum Industrial Holdings fund, whose shares have recently been offered to existing fund shareholders, states that Dr Purnendu Chatterjee paid a civil penalty of dollars 643,855 as part of the SEC deal, which included 'disgorgement' - repayment of profits - by two Chatterjee associates in January last year. Dr Chatterjee does not admit the alleged offence.

The preliminary information memorandum says Dr Chatterjee also agreed to a final judgment 'restraining and enjoining' him from violating sections of the Securities and Exchange Act.

However, the memorandum does not explain that the sections relate to insider trading.

The case centred on the Foxboro Company, based in Massachusetts. The Soros group had built a stake in the company and Dr Chatterjee was appointed to the board in April 1990. In the summer of 1990, according to the SEC, he provided 'non-public information' to two people about a tender offer for Foxboro. One was his brother-in-law in France and the other a consultant in Westport, Connecticut. They bought shares and made profits of more than dollars 640,000.

It was not alleged that Dr Chatterjee bought shares for himself. However, Juan Marcelino, the SEC's then acting regional administrator in Boston, where the case was investigated, said at the time: 'Dr Chatterjee's actions as a director of a public company were a very serious abuse of the public's trust.'

Dr Chatterjee has been an important adviser to Mr Soros since 1986. He is an expert in hi-tech investments and will be a 'sub-adviser' to the new industrial fund under Soros Fund Management, which is 100 per cent owned by Mr Soros. Dr Chatterjee appears to manage funds for his own clients in addition to advising Soros Fund Management.

Initially, shareholders in the new fund will not have the right to redeem their shares, but it is proposed that these rules will be altered later.

Both Soros Capital and the 'Chatterjee Group' will be transferring substantial investments to the new fund. Quoted securities will be transferred at 'fair market value' while illiquid investments will be switched at 'cost plus a carrying charge'. The size of this charge is not explained.

Potential conflicts of interest in these inter-group transactions are noted in the memorandum. It explains that Mr Soros's management company, SFM, 'may have an incentive to structure its holdings in a manner more favourable to Mr Soros than to the Fund'.

A Quantum spokesman said of the episode last week that Dr Chatterjee had been out of line and had been given a slap on the wrist.

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