The SEC has charged a Synchrony Capital hedge fund manager with stealing from the hedge fund to pay for Broadway shows, clothing, jewelry, vacations, and kids’ summer camp fees, among other luxury expenses.
According to the charges, which were filed in the US District Court for the District of Massachusetts, Eric Lyons misappropriated approximately $570,000 from the hedge funds he managed. Lyons is also accused of engaging in a fraudulent offering of securities, in which he obtained $300,000 from an investor based on false and misleading statements, in order to replace some of the misappropriated money. In total, the SEC alleges that Lyons raised approximately $700,000 from the misappropriation and securities offering fraud schemes.
Lyons and another unnamed owner founded the Synchrony hedge fund business in 2012 with the formation of Synchrony Capital as the adviser to, and manager of, the Synchrony Value Fund. Lyons and the other owner initially founded the business as an investment vehicle for Lyons’ extended family, although Lyons was not an investor in his family’s fund. Instead, Lyons was paid by the family through the fund to serve as their investment adviser.
The SEC’s complaint alleges that from mid-2017 to the present, Lyons and various investment adviser entities that he controlled engaged in a scheme to misappropriate assets from the hedge funds Lyons and the Synchrony adviser entities managed. Lyons allegedly transferred hundreds of thousands of dollars from the Synchrony hedge funds to his personal bank accounts to pay for expenses such as vacation travel, entertainment, rent, automobile lease payments, and other personal expenses.
According to the complaint, in May 2017, Lyons started to negotiate with a Czech investor about forming a new private fund separate from the Value Fund. As part of the new fund, the Czech investor also wanted to acquire 50% of the fund’s newly formed investment adviser in exchange for investing $100,000 in the fund alongside its client. Without informing the other members of Synchrony Capital, Lyons agreed to start the new private fund, which he called the Capital Partners Fund.
Lyons created Synchrony Capital Group as the general partner of the Capital Partners Fund, and as such would receive management and performance fees from the fund. Lyons also opened a brokerage account and bank accounts in the name of Synchrony Capital Group and the Capital Partners Fund, over which he had control but the Czech investor did not. The SEC said Lyons’ and Synchrony Capital Group’s representations to the Czech investor regarding the operation of the Capital Partnership Fund and the custody of investor funds were “false and misleading.”
The complaint alleges that Lyons and Synchrony Capital Group knew that they intended to misappropriate the Capital Partners Funds’ assets by transferring them to Lyons’ personal bank account or using them to pay for Lyons’ personal expenses.
According to the regulator, in February 2018, the assets of the Capital Partners fund were wiped out by investment losses incurred by securities trading positions taken by Lyons and Synchrony Capital Group. And by December of that year, Synchrony Capital had dissolved.
The SEC is seeking injunctive relief, disgorgement of ill-gotten monetary gains, plus interest and penalties. The SEC’s complaint also names as relief defendant Synchrony Global Macro, LP, which holds investor assets.