SEC Charges Chatham Asset Management and Founder Anthony Melchiorre for Improper Fixed Income Securities Trading

Chatham Asset Management LLC, a New Jersey-based investment company, and its founder, Anthony Melchiorre, have been charged by the Securities and Exchange Commission (SEC) for engaging in improper trading of certain fixed income securities. The SEC has ordered Chatham and Melchiorre to pay more than $19.3 million in combined disgorgement, prejudgment interest, and civil penalties to settle the charges.

According to the SEC’s order, Chatham and Melchiorre engaged in trades involving American Media, Inc. (AMI) bonds between 2016 and 2018 to address portfolio constraints, meet investor redemptions, and allocate capital inflows and outflows. These trades were executed at prices proposed by Chatham and Melchiorre and had the effect of significantly increasing the price of the AMI bonds at a higher rate than similar securities. Chatham’s and Melchiorre’s trading accounted for the majority of trading in the AMI bonds, which had a material effect on their pricing over time.

The SEC also found that Chatham and Melchiorre calculated their client funds’ net asset values (NAVs) using pricing data based on the trading prices of the securities, resulting in higher NAVs and fees being charged to clients. The SEC’s Deputy Director of Enforcement, Sanjay Wadhwa, stated that Chatham’s trading in the AMI bonds increased the prices of illiquid securities in a way that was disconnected from economic reality.

Chatham and Melchiorre have 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 aided and abetted and caused violations of the Investment Company Act of 1944. They have agreed to pay $11 million in disgorgement and $3.4 million in prejudgment interest jointly and severally, as well as civil penalties of $4.4 million and $600,000, respectively. They have also agreed to prohibitions from serving in certain positions in the investment industry, pursuant to the Investment Company Act.

The SEC’s investigation was conducted by Daphne Downes, Brian Fitzpatrick, and Lindsay S. Moilanen, with assistance from Carina Chambarry and Raymond Wolff of the SEC’s Division of Economic and Risk Analysis, and was supervised by Sheldon Pollock. The examination that led to the investigation was conducted by members of the Division of Examinations’ Private Funds Unit, including Jennifer Duggins, Christopher Marino, and Michael Collins. The SEC thanked the Financial Industry Regulatory Authority for its assistance with this matter.