A Bermuda investment-holding entity is at the centre of a US criminal legal case that has resulted in hedge fund managers pleading guilty to a federal conspiracy charge on Wednesday.

Three former executives of a Ridgefield-based hedge fund have admitted to charges stemming from a scheme to defraud investors. The now face a maximum term of imprisonment of five years.

According to the Connecticut Post in an online posting yesterday, David Bryson, 45, and Richard Pereira, 42 of Ridgefield and Bart Gutekunst, 62, of Weston, entered their pleas on Wednesday in US District Court in New Haven. The men were executives of New Stream Capital LLC. Bryson and Gutkunst were managing partners and Pereira was the chief financial officer, according to the Connecticut newspaper.

The Connecticut Post reported that the investigation was conducted by the FBI along with the US. Department of Labor and the Securities and Exchange Commission.

According to the indictment and statements made in court, New Stream launched new feeder funds, one based in the United States and a series of funds based in the Cayman Islands.

New Stream announced that its existing Bermuda Fund would be closing, and all foreign investors would have to move their investments into the Cayman Fund. Rather than transfer into the new structure, New Stream’s largest investor placed a redemption on its whole investment in the Bermuda Fund.

“At risk of losing their largest investor, it is alleged the three men set in motion a scheme to secretly keep the Bermuda Fund open and give priority to Bermuda Fund investors in an effort to reverse the redemption.

“As part of the scheme, New Stream staff secretly reorganised the fund structure so as to effectuate the priority change.”

The Connecticut Post continued: “The indictment further alleged that New Stream failed to inform investors who had transferred from the Bermuda Fund into the Cayman Fund that the Bermuda Fund was remaining open or that it was being given priority over the Cayman Fund. Moreover, New Stream continued to market New Stream to investors by concealing from them the magnitude of the actual pending redemptions and by using deceptive marketing materials that failed to disclose the existence of New Stream’s Bermuda Fund.”

According to the newspaper, they were charged with “cutting a secret deal with its biggest client and grabbing millions in fees as their $750 million hedge fund sank in 2008.”

It reported that according to the government’s case, as the 2008 financial crisis deepened, New Stream faced $545 million in redemptions and suspended redemption requests and ceased raising new funds. New Stream filed for bankruptcy protection in 2011 and left investors with virtually nothing, according to SEC claims.

A federal grand jury sitting in New Haven had originally returned a 19-count indictment charging three executives with conspiracy, securities fraud and wire fraud offences. The SEC had also filed a civil complaint against the men. Each of the defendants was charged with one count of conspiracy, 10 counts of securities fraud and eight counts of wire fraud.

The defendants had pleaded not guilty to the charges of lying to investors about the status of its offshore funds at that time.

When the three men were first arrested, according to the same newspaper, a lawyer from the US Attorney’s Office had stated: “As alleged, fearing the loss of their fund’s largest investor, these defendants orchestrated a scheme to deceive investors in order to obtain and maintain investments.”

An FBI special agent was quoted as saying: “It goes without saying that investing carries certain risks. Those risks, however, should not include any chance that hedge fund managers or other investment professionals are lying to or deceiving their investors about the current state of investments.

“Investors have a right to full disclosure. Today’s arrests underscore the FBI’s continuing commitment to investigate those who provide material misrepresentations to investors.”