The Securities and Exchange Commission (SEC) today filed a complaint against Lee A. Bressler.

The complaint, submitted at the New York Southern District Court, alleges that, from approximately September 2017 through February 2018, Bressler, Portfolio Manager of an Oklahoma-based hedge fund called Carbon Master Fund, L.P., placed unauthorized high-risk margin and option trades on behalf of the Fund and engaged in other fraudulent conduct that caused the Fund to suffer a complete loss of all investor capital (more than $10 million). Bressler placed these trades and engaged in this conduct without disclosure to the Fund’s outside investors.

In late 2016, Bressler and two other individuals (collectively, the “Carbon Principals”) founded the Fund and Carbon Investments Partners, LLC (“Carbon”), the general partner of, and investment adviser to, the Fund. Aside from the Carbon Principals, each of whom, directly or indirectly, invested varying amounts in the Fund, 10 outside investors invested in the Fund.

The Fund’s core strategy was to limit risk through limitations on position size and concentration in any one security and actively monitoring net volatility exposure. The Carbon Principals initially opened one trading account through its prime broker.

Bressler was the Fund’s Portfolio Manager, and he had primary discretionary authority over the Fund’s trading. In late summer and early fall 2017, without disclosure to Fund Investors, Bressler opened two additional Fund trading accounts. The Fund’s Primary Account and Side Accounts were margined against the positions held in the Fund’s Primary Account, a fact Bressler also did not disclose to Fund Investors.

The complaint further alleges that, beginning at least as early as September 2017, and continuing through February 2018, Bressler placed unauthorized high-risk trades that he allocated to the Side Accounts. These trades were contrary to the Fund’s conservative investment strategy as marketed to Fund Investors and were not disclosed to Fund Investors. While making these unauthorized trades and materially misleading statements, Bressler continued to solicit investors to invest in the Fund.

In February 2018, Bressler’s fraudulent conduct resulted in the Fund’s collapse and a complete loss of all invested capital, including all of the invested capital by Fund Investors.

The SEC claims that, through his fraudulent conduct, Bressler violated Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933 (“Securities Act”), and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 (“Advisers Act”) and Rule 206(4)-8 thereunder.

The Commission seeks a permanent injunction, a civil penalty, and an order barring Bressler from serving as an officer or director of a public company.