Litigation Releases (Hedonova Fund LLC Hedonova Advisors LLC)

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 26041 / July 2, 2024

SEC Alleges Fraudulent Securities Offering of Alternative Assets

Securities and Exchange Commission v. Hedonova LLC and Hedonova Advisors LLC, Civil Action No. 2:24-cv-05293 (C.D. Cal. filed June 24, 2024)

On June 24, 2024, the Securities and Exchange Commission filed a complaint in federal court in Los Angeles alleging that Hedonova LLC ("the Hedonova Fund"), a purported mutual fund for alternative assets, and Hedonova Advisors LLC, its investment adviser, perpetrated a fraudulent offering.

According to the complaint, from at least November 2021 to the present, the Hedonova Fund and Hedonova Advisors engaged in a fraudulent scheme by raising money from investors while making numerous false statements about the Fund's operations and governance, including the identity of the Fund's auditors, administrator, custodian of funds, and bankers, as well as false statements about its investments. For example, the complaint alleges that a January 2021 private placement memorandum claimed a Big Four accounting firm as the Fund's auditor, a Chicago-based financial services firm as its administrator, and an international bank as its bank. However, after searching their records at the request of the SEC, none of those institutions found any records relating to the Hedonova Fund.

Similarly, the complaint alleges that as of November 1, 2023, the Hedonova Fund's website claimed relationships with several well-known and reputable accounting firms and banks. The website listed a different accounting firm as the Fund's auditor and explained that "Auditors ensure we follow the best accounting practices, standards, and protocols. They also review our valuation methods and how they are implemented." The complaint further alleges that as of the same date, the website listed two international banks as "Bankers" and the Chicago-based financial services firm as "Custodian" and included images of the logos of both international banks and the Chicago-based financial services firm. The complaint alleges that these claims were also false, as all of these institutions informed the SEC that they have no records of Hedonova Fund or Hedonova Advisors ever having been a client.

The complaint also alleges that Hedonova Fund received at least $10 million in funds primarily through an online payment processor and an online money transfer service, and that the Hedonova Fund told investors that it has extraordinary investment returns but, despite subpoenas and repeated requests from the SEC, the Hedonova Fund has not substantiated these claims.

The SEC's complaint charges the Hedonova Fund and Hedonova Advisors with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and Hedonova Advisors with violating Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder.

After the filing of the complaint, the SEC filed a motion for emergency relief seeking expedited discovery, an order prohibiting the destruction of records, as well as an accounting of all assets currently under the management of Hedonova Advisors, including any assets of the Hedonova Fund.

The investigation of this matter was conducted by Lee Farnsworth, Jean Javorski, and Tim Tatman and supervised by CJ Kerstetter, of the SEC's Chicago Regional Office. The litigation will be led by BeLinda Mathie and assisted by John Birkenheier.

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