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News September 20, 2004 Issue

Beacon Hill Wins Battle to Keep E-mails From SEC

The SEC has been trying to get its hands on a number of e-mails relating to former hedge fund manager Beacon Hillís use of an outside valuation consultant. So far, it has failed.

The SECís interest in the e-mails arose in the context of its enforcement proceeding relating to Beacon Hillís sudden 54 percent devaluation of its hedge funds in October 2002. Specifically, the SEC wants to see a number of e-mails between the firm and Andrew Davidson & Co., an independent expert the firm hired to review its valuations. The SEC also wants to see spreadsheets attached to those e-mails, as well as internal Beacon Hill e-mails reflecting communications with Davidson.

But the SEC ran into a snag: Beacon Hill listed those e-mails on its privileged log, citing work product and attorney-client privileges.

The SEC has twice asked a federal judge to order Beacon Hill to hand over the e-mails, arguing that since Beacon Hill lawyers told the SEC that Davidson had reviewed the firmís valuations and concluded that "the numbers did not look unreasonable," Beacon Hill was obligated to provide the underlying documentation so that the SEC staff could evaluate Davidsonís conclusion.

On August 3, a magistrate judge ruled that Beacon Hill didnít have to turn over the e-mails. The SEC appealed, and last week, another federal judge upheld the August decision, again ruling in favor of Beacon Hill. For now, the SEC is moving on. "Obviously, we reserve all of our rights and if we were to choose to appeal, that would come at the very end of the case when final judgment is rendered," said SEC assistant chief litigation counsel Richard Simpson.