$19.3M Penalty For Chatham-Based Hedge Fund For Bond Trading 

CHATHAM, NJ — A Chatham-based hedge fund and its founder have agreed to pay approximately $19.3 million in civil penalties to resolve a claim that they improperly traded certain fixed-income securities.

Chatham Asset Management LLC and founder Anthony Melchiorre agreed to the order without admitting or denying the findings of the Securities and Exchange Commission (SEC).

The two parties also agreed to pay $11 million in disgorgement and approximately $3.4 million in prejudgment interest, as well as civil penalties of $4.4 million and $600,000, respectively.

According to the SEC order, between 2016 and 2018, one Chatham-advised client sold certain American Media, Inc. (AMI) bonds while another Chatham-advised client purchased the same bonds through various broker-dealers.

AMI, now known as a360 Media LLC, is a print media publisher that was responsible for a number of long-running publications during the relevant period, including US Weekly and The National Enquirer.

The SEC stated that Chatham and Melchiorre proposed prices for the trades, effectively raising the price of AMI's bonds relative to similar securities. This also increased the net asset values of their clients' funds during that time period, resulting in more fees.

Melchiorre, 55, owned roughly 70 percent of the company during the relevant period and is the managing member of the general partner entity for each of the funds.

Melchiorre also served as the primary portfolio manager for all of Chatham's clients between 2016 and 2018.

Chatham and Melchiorre consented to the SEC’s order, without admitting or denying its findings, that they violated Section 206(2) of the Investment Advisers Act of 1940, and that they aided and abetted and caused violations of the Investment Company Act of 1944.

"We remain vigilant in rooting out such misconduct in the marketplace, including in the fixed income sector, where investments can be less liquid," Sanjay Wadhwa, the SEC's deputy enforcement director, said in the statement.

"Chatham sought, received and followed advice from an independent compliance consultant about the manner of executing the trading in question. The consultant reviewed Chatham’s trading annually for compliance with applicable laws and did not alert the firm to any issues," a spokesperson for Chatham told Patch. "Importantly, the trading occurred more than four years ago in funds that have since been closed. The matter has been resolved and we are focused on generating returns for our investors."