US financial regulatory body the National Futures Association (NFA) has ordered Duet Asset Management Ltd., an NFA Member commodity pool operator and commodity trading advisor located in London, England, to pay a $1 million fine.
Duet Asset Management Ltd. is part of Duet Group, a London based global alternative asset manager co-founded by former CSFB and Merrill Lynch executive Henry Gabay in 2002. As of Q2 2017, Duet Group manages over $4.4 billion of equity across three business areas: Hedge/Long-Only Funds, Private Equity and Real Estate.
The Decision, issued by NFA’s Business Conduct Committee (BCC), is based on a Complaint authorized by the BCC on May 1, 2017, and a settlement offer submitted by Duet Asset Management Ltd. The Complaint alleged, among other things, that Duet Asset Management Ltd. caused its pools to make prohibited loans and advances to entities affiliated with its chief executive officer, Henry Gabay, a listed principal of the firm, and used pool assets to make these loans and invest in other transactions that furthered the interests of Gabay and his affiliates, rather than those of pool participants.
The Complaint also alleged that Duet Asset Management Ltd. permitted Gabay and his affiliates to misuse pool assets by pledging these assets as collateral to guarantee financial obligations of Gabay and his affiliates, failed to adequately disclose material information to participants in two pools regarding Gabay and his affiliates’ involvement in one of the pools’ investments, and paid redemptions that did not take into account the highly illiquid nature of particular stock holdings.
The Complaint further alleged that Duet Asset Management Ltd. used misleading promotional material regarding the personal investments of the chief investment officer for Duet Asset Management’s Global Plus Fund and permitted an unregistered individual, Mr. Gabay, to act as an associated person (AP) of the firm without being registered as such.
In addition to the $1 million fine, the BCC ordered Duet Asset Management Ltd. to provide notice of NFA’s disciplinary action to its former, current and future clients, and to register Gabay as an AP of the firm.
A Duet Group spokesperson made the following statement to LeapRate:
Duet Group specializes in niche investment strategies involving complex and added-value transactions. It takes advantage of cross-fertilization among its various asset classes, from long-only equity, debt funds, hedge funds, private equity and real estate, to create above average returns for its sophisticated, institutional investor base.
Duet Asset Management (DAM) failed to appreciate the extent to which NFA rules prohibit related parties transactions, even when done on commercially reasonable terms. These types of related parties transactions would ordinarily be allowed by other regulatory bodies as long as they are properly disclosed to investors. The transactions in question were generally disclosed in our fund annual reports or elsewhere.
DAM believes these transactions should not be characterized as a misuse of the pools’ assets, were done for the pools’ benefit, and in almost every instance resulted in market, or above-market returns for the pools. Investor funds were not harmed in any way.
DAM fully cooperated with the NFA and has decided to settle, without admitting or denying the violations. DAM has already undertaken remedial measures to prevent any future violation of NFA rules, including the creation of an internal policy prohibiting all related parties transactions falling under the NFA’s jurisdiction.
The complete text of the Complaint and Decision can be viewed on NFA’s website.