Earlier today, Texas Securities Commissioner, Travis Iles, entered an order revoking the investment adviser registration of Swiftarc Capital, LLC (“Swiftarc Capital”), ordering the firm and its Managing Director, Siddarth Jawahar, to cease and desist from engaging in fraud.
Since September 2019, Swiftarc Capital and Jawahar have been engaging in fraud by overvaluing an illiquid, sizeable position owned by the Swiftarc Fund, LP (the “Fund”), which was managed by Swiftarc Capital and Jawahar.
Beginning in 2015, the Fund began increasing its stake in one security: Philip Morris Pakistan (“PMP”). And by 2019, the Fund was almost exclusively (99%) invested in PMP. Shares of PMP were thinly traded. By September 2019, monthly trading volume had fallen below 3,500 aggregate shares.
The price of PMP was similarly declining. And Jawahar instructed the Fund’s administrator to report a value of PMP of 4,000 rupees per share on its investor reports rather than the price listed on the fund’s brokerage account statements. According to Jawahar, the last time that PMP had breached the 3,500-trading threshold was March 2019, when the price temporarily hit 4,000 rupees, likely due to the fund’s own purchases of PMP.
The 4,000 rupee valuation of PMP became increasingly higher than the price at which PMP was trading. According to firm brokerage statements, mark-to-market fair value for PMP during this same time experienced a steep decline in trading price from 3,230 rupees per share in September 2019 to 1,760 rupees per share in May 2020. As of May 25, 2022, PMP was trading at a price of 541 rupees.
Neither Swiftarc Capital nor Jawahar informed investors of the source of the valuation. Nowhere in any of the marketing materials, offering memoranda, investor reports, or capital statements did Swiftarc Capital or Jawahar disclose that the valuation came directly from Jawahar and was not reflective of legitimate independent mark-to-market statements.
This overstated net asset value resulted in complications with respect to investor redemptions. As requests came in, the Fund could not sell PMP at a share price of 4,000 rupees. In fact, selling any shares would have driven the price down further. The Fund was effectively illiquid.
Since the Fund’s positions were illiquid and it had nearly $5,000,000 in outstanding redemption requests, it needed to generate cash. And how did it do that? It solicited new investors.
In early 2020, Jawahar met with at least one potential investor and solicited a $250,000 investment into the Fund. Jawahar did not disclose to this investor that the Fund was 99% invested in one thinly traded security and needed an influx of cash to satisfy multiple outstanding redemption requests. Instead, Respondents described the fund in terms of its original investment objectives as described in the offering documents. All $250,000 of the investor’s capital went to make payments to two other investors to partially satisfy their outstanding redemption requests.
Contact: Cristi Ochoa, Attorney, Inspections and Compliance Division, Texas State Securities Board, at firstname.lastname@example.org,gov.