I didn't read that in the sec complaint. She kept two valuations (which she published to investors) : realized vs unrealized and standard nav. Unrealized is wrong but that's just accounting (similar to tax loss selling around New Years). The she put on calendar spreads that produced no net gain or loss but created two taxable events (a gain and a loss). Nav isn't affected as the two taxable events offset each other but they created a fee for her.
You may want to read it again: "Each month, Hope caused the Funds to make certain “Scheme Trades” that had the purpose and effect of realizing a large gain in the current month while effectively guaranteeing a large loss would be realized early the following month. In essence, these trades continuously converted any realized losses into realized gains in the current month, and losses which would be realized in subsequent months, except that they would be continually deferred by the Defendants engaging in additional Scheme Trades. The Defendants did not simply delay realization of trading losses, however, they also intentionally sized the Scheme Trades such that the Funds realized a profit every month. Hope employees maintained a spread sheet that tracked, month to date, the realized losses of the Funds. As the end of each month approached, Bruton picked the amount of profit she wished the Funds to show (and de facto, the fees she wished to generate), and her traders would size the Scheme Trades accordingly." "The HI Fund had an NAV of approximately $136 million as of February 29, 2016. 23. As of the same date, the HI Fund had unrealized losses of approximately $57 million. 24. The HI Fund had unrealized losses at the end of every month for at least two years, with the amount fluctuating between $3 million and $62 million. The Fraudulent Trading Scheme 58. In October and December 2014, the Funds experienced significant trading losses due to volatility in the financial markets. 59. In response to these enormous losses, beginning in November 2014 and continuing almost every month to the present, Defendants entered a series of trades (“Scheme Trades”) in the accounts of the HI Fund and the HDB Fund that had the purpose and effect of avoiding realization of the losses. 60. Hope had used similar Scheme Trades in the prior months. 61. Before February 2015, the Defendants used a variety of forms of Scheme Trades, but they all had the same purpose and effect, i.e., to avoid having realized losses at any month’s end. 62. In most months after February 2015, the Scheme Trades took the form of large matching “paired” trades that essentially canceled each other and cumulatively had little to no prospect of gain or loss, except for transaction costs. 63. These Scheme Trades, however, effectively “rolled over” realization of losses to subsequent months, which allowed Defendants to (1) report a targeted monthly realized gain of approximately 1% in the Funds every month and (2) receive an incentive fee every month and avoid the high water mark restriction. 64. Hope employees maintained a spreadsheet that tracked, month to date, the realized losses of the Funds. 65. As the end of a particular month approached, Bruton would ask Hope employees for the amount of the Funds’ net realized losses month to date. 66. Bruton would then either enter a Scheme Trade herself or approve Scheme Trades that the other traders proposed and entered. 67. These Scheme Trades often involved (1) selling call or put options on futures that would expire at the end of the current month (“first leg option”) and simultaneously (2) buying call or put options on futures for the same quantity at the same “strike price” that would expire early the next month (“second leg option”). 68. These options would typically be deep “in the money,” meaning they were very likely to be exercised or assigned. 69. The sale of the first leg options would result in significant proceeds (referred to as “premium”) being paid to the respective Fund, which was realized as a gain for the current month when the first leg option expired. 70. Bruton picked the size of the first leg option sale so that the premium collected would be sufficient to offset the losses realized for the month and enable the fund to report a net realized gain for the current month. 71. The expiration of the first leg options also resulted in the assignment of futures in the Fund’s account, which would carry a large “unrealized” loss at the current market price. 72. The expiration of the second leg option, typically at the end of the first week of the subsequent month, covered this open futures position, but also required the Fund to realize a large loss (the purchase price of the second leg option). 73. The net effect of the Scheme Trades was to allow Hope to defer indefinitely the Funds’ realization of trading losses while consistently reporting a realized gain in the Funds and collecting an incentive fee. 74. To illustrate with a specific example, the HI Fund began the month of February 2015 with a net unrealized loss of $44 million. Much of this loss became realized early in the month. 97. For example, in October of 2014, Hope experienced massive trading losses as a result of volatility in the market. The HI Fund and the HDB Fund collectively ended the month with unrealized losses of approximately $100 million, most of which resulted from the October trading losses. Nevertheless, Hope reported to investors that the Funds had millions of dollars’ worth of “realized” gains in October and collected incentive fees of more than $600,000. F. Hope’s Redemption Practices 105. Hope redeems investors exiting the HI Fund without reducing the value of their investments by the HI Fund’s large net unrealized losses. 106. Consequently, redeeming investors get a windfall, while the pro rata share of the unrealized losses to the remaining investors increases. 107. While the Fund states that investors will redeem exclusive of unrealized losses, the Fund does not inform new investors that the value of their investments are subject to immediate reduction as a result of their being saddled with a pro rata share of large unrealized losses. 108. The manner by which the HI Fund pays redemptions (excluding unrealized losses) creates a risk that, if the unrealized losses continue or there is a significant exodus, the last investors to redeem will not get any money. That risk is not expressly disclosed to investors. You just can't make this shit up.
Paragraph 47 says the NAV was a correct calculation: incorporated the realized and unrealized only. Everyone knows what the value of the fund is. No one knows how it will be dissolved. Her accounting for fees is definitely fraudulent but this wasn't a madoff style "the money is stashed in the hull of a yacht" I think the fees get disgorged and she gets censured. Probably can't manage money again.
How can the NAV be correct if its showing her fund to be profitable? The document is saying that accounting for only "realized gains" the NAV is correct. If I pull your teeth can I say you're Gumby? By this definition Madoff, yacht or no yacht, didn't do anything wrong either. BTW, Bernie did pay out 100% of the correct amount to his investors as well per the "NAV". That's how ponzi's work, the early people get their money out, the latter do not. This court document explicitly stated, that the early investors "would" get their capital back but if the losses continued longer then she could maintain the forward rolls, the later investors would get NOTHING! So whose NAV is correct, the early investors or the latter? Can't be both capadre.
I now understand how she avoided losses. She mentioned in the tastytrade interviews she hated losses so avoid taking losses. I thought she meant just roll them over until the losses went away when the underlying moved in her favor.
Time for you to put a lid on it, your annoying, I think Sweet Bobby needs your help in the garage...and dont come back with "I'm just trying to learn".
If my post offended you my apology. I noticed there are generally two classes of people visiting ET, the experts like you and the novices like me. You don't need to be a better trader but I do. A lot of my posts were trying to ask or to confirm my understanding of others' comments so I personally can avoid the same mistakes. If that is too offensive to you, you can ignore my posts but please do not deny me a chance to learn. Best wishes.
I wonder if she has bothered to show up for work during the last week ? And I'd like to know what her employees knew about her shenanigans. I recall that she only had 3 traders working for her. It seems unlikely that they could be traders and had their finger on the pulse and were not aware of what she was doing and the reports she was releasing. And I wonder if she has any kids and what they think about the prospect of Mom / Grandma going to the Big House ? Maybe they can do a reality show on her experience in the Slammer. The only advice I would give her is to downplay her association with TastyTrade. Somehow, a name like that isn't a good idea for prison.