One-time Institutional Investor Hedge Fund Rising Star Nehal Chopra, along with her firm and husband, have settled with the Securities and Exchange Commission over allegations that he improperly shared confidential investment recommendations with her.
Chopra, founder of Ratan Capital Management, failed to disclose the source of the information to her firm’s clients, according to a December 5 cease-and-desist document from the SEC. Ratan and Chopra were each ordered to pay a civil penalty of $200,000 for violating certain provisions of the Investment Advisers Act of 1940, while her husband Paritosh Gupta was ordered to pay a $250,000 penalty.
Chopra, 37, used information that Gupta had gleaned from his work at hedge fund firm Brahman Capital, according to a separate SEC cease-and-desist order, also dated December 5. The SEC says Gupta shared with Chopra “investment theses, models, notes, recommendations, and analyses” that he and his colleagues had developed for Brahman fund clients.
The SEC ordered Brahman to pay a $250,000 civil penalty for failing to “reasonably supervise” Gupta. The regulator cited the same allegations as the order against Chopra, Ratan and Gupta. They all settled with the SEC without denying or admitting the regulator's findings.
The SEC alleges that Chopra failed to disclose to Ratan’s investors the role that Gupta played behind the scenes — and that Gupta failed to tell his own firm that he was giving investment advice to his wife, in violation of its internal policies. Gupta helped write and edit Ratan documents for Chopra — including investor letters, marketing presentations, and due diligence questionnaires — and interviewed candidates for jobs at Ratan, according to the cease-and-desist orders.
The watchdog also alleged that Gupta, who launched his own hedge fund firm, Adi Capital Management, in January 2014, “inaccurately stated” in a regulatory filing with the SEC in 2014 that Gupta and Chopra “did not share confidential investment-related information regarding their funds’ current or potential investments.” Gupta worked at Brahman Capital before founding Adi Capital.
In reality, the SEC alleges, Gupta sent Chopra e-mails and Bloomberg chat messages about the timing of Brahman’s positions and sizes, which he then urged her to follow.
“For example, in March 2010, Gupta messaged Chopra asking her how big a position Ratan had in a particular security,” the SEC said in the December 5 documents. “When Chopra responded that it constituted 2.3 percent of Ratan’s portfolio, Gupta wrote that it should be bigger and she should call him. That day, Ratan purchased additional shares of the security.”
In November 2011, Gupta advised Chopra over email to start selling a particular security, on the same day that Brahman had begun reducing its position in the security, according to the SEC. And at least once, Gupta monitored Ratan’s entire portfolio when Chopra was traveling out of the country, the regulator alleges.
Chopra was a protégé of Tiger Management founder Julian Robertson Jr., who seeded her firm, then called Tiger Ratan Capital Management, in 2009. Robertson, a hedge fund legend, had invested $25 million in Chopra’s firm via his Tiger Accelerator fund, which seeded startups with ties to Tiger Management. But Robertson pulled his investment from the firm in 2016, and ultimately shuttered Accelerator, according to regulatory filings. Chopra’s firm changed its name to Ratan Capital Management at that time.
[II Deep Dive: Julian Robertson Pulls Money from Nehal Chopra’s Ratan]
Chopra — a rare female member of the Tiger clan — was named an II Hedge Fund Rising Star in 2013 on the back of strong returns in her firm’s main long-short equity hedge fund, which gained 26.3 percent in 2012, 46.8 percent in 2013, and 22.3 percent in 2014. But Chopra, known for running an exceptionally concentrated portfolio, posted a brutal 19 percent loss in the fund in 2015. After a 51.59 percent drawdown from May 2015 through June 2016, the firm recovered, reducing its losses to 12 percent at the end of the third quarter in 2016.
Ratan had $375 million of regulatory assets under management in March, and Adi had $368 million, according to the SEC. RAUM is a figure that asset management firms above a certain size must report to the SEC that includes leverage and notional values of securities.
Carmine Brocato, who is listed on LinkedIn as Ratan’s chief financial officer and chief compliance officer, didn’t immediately return a phone call seeking comment. Gupta, also 37, didn’t immediately respond to a request for comment. Brahman Capital declined to comment.