The Securities and Exchange Commission has charged a former $1 billion hedge fund advisory firm and two executives for overvaluing assets under management and exaggerating the reported returns of hedge funds they managed in order to hide losses and boost fees.

According to the SEC's complaint, New Jersey-based Yorkville Advisors founder and president Mark Angelo and chief financial officer Edward Schinik enticed pension funds and other investors by falsely portraying Yorkville as a firm which managed a "highly-collateralized investment portfolio and employed a robust valuation procedure."

The hedge fund advisors misrepresented the safety and liquidity of the investments made, charging "excessive fees" based on the fraudulently inflated values of the investments.

According to the SEC’s complaint - filed in US District Court for the Southern District of New York - Yorkville, Angelo and Schinik defrauded investors in the YA Global Investments (US) and YA Offshore Global Investments hedge funds.

The two executives allegedly failed to adhere to Yorkville’s stated valuation policies, while ignoring negative information about certain investments and withholding information about fund investments from Yorkville’s auditor, enabling Yorkville to carry some of its largest investments at inflated values.

“The analytics put Yorkville front and center on our radar screen,” said Bruce Karpati, chief of the SEC enforcement division’s asset management unit. “When we looked further we found lies to investors and the firm’s auditors as well as a scheme to inflate fees by grossly overvaluing fund assets. We will continue to pursue hedge fund managers whose success is based on fiction rather than fact.”

Overall, Angelo and Schinik harvested over $280 million in investments from pension funds and funds of funds. This enabled Yorkville to charge the funds at least $10 million in excess fees based on the inflated values of the firm's assets under management.