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Fraud Wasn't Email's Goal, Adviser Says

May 24, 2011 (Knight Ridder/Tribune Business News) Greensboro investment manager Stan Kowalewski pushed back Monday against charges he tried to deceive former clients in a recent email supposedly aimed at undermining the U.S. Securities and Exchange Commission.

He only sent the email to one former client, Kowalewski said in a written declaration filed with the U.S. District Court for Northern Georgia in Atlanta.

His goal was simply to get the man to think critically about the actions of a court-appointed receiver who is selling off the assets of Kowalewski's now-defunct company, SJK Investment Management, Kowalewski said.

"It was not my intention to do anything other than alert him to actions and activities of the receiver that I believe are not in the best interests of investors," Kowalewski said in the statement.

Kowalewski and his lawyer, Thomas R. Todd Jr. of Atlanta, filed the answer in a multimillion-dollar civil lawsuit the SEC rolled out Jan. 6 against SJK and Kowalewski, known locally for his avocation as a high school basketball coach.

The agency claims Kowalewski defrauded investors in Georgia, North Carolina and elsewhere by diverting more than $16 million of their money to an improper fund used for his own dubious business deals, such as purchasing a $3.9 million beach house in Pawleys Island, S.C.

Clients believed Kowalewski and SJK were investing their money almost exclusively in so-called hedge funds, investment portfolios run by managers not directly affiliated with Kowalewski or his former company, the SEC alleges.

In his declaration Monday, Kowalewski responded to last week's order by U.S. District Judge Timothy C. Batten Sr., which found the Greensboro businessman in contempt of court for withdrawing $200,000 in investor money after Batten froze those funds at the start of the SEC's lawsuit.

SEC lawyers recently added the May 10 email to their initial complaint that Kowalewski acted contemptuously when he tapped the frozen money, saying the online letter to "at least one investor" shows further contempt by revealing that Kowalewski is still trying to defraud former clients.

Batten's order last week dealt only with Kowalewski tapping the frozen $200,000 for legal fees and other uses. But before deciding Kowalewski's punishment on that score, the judge said he wanted Kowalewski to answer the SEC's new contempt allegation about the email.

Todd, Kowalewski's lawyer, said in accompanying legal papers that the email doesn't qualify as further contempt because it made no false statements, violated no court order and "simply urges the investor to consider whether the receiver's actions are benefiting investors."

Kowalewski sent the email two weeks ago to Gregory Schaack, chief financial officer for St. Joseph's/Candler Health System of Savannah, Ga. -- one of SJK's larger investors.

In the email, he broadly criticized the receiver, Atlanta consultant S. Gregory Hays, who the judge appointed to recover as much of the investors' lost money as possible.

Kowalewski charged that Hays and his staff are bungling recovery efforts through "lack of knowledge with respect to the hedge fund industry."

Specifically, he claimed that Hays is allowing some of Kowalewski's former business partners to sell too cheaply McNairy Pointe, a partly completed real estate development off Air Harbor Road in north Greensboro.

SEC lawyers said the criticism amounted to continued fraud because it contained falsehoods aimed at persuading investors that if they take his side in the SEC lawsuit, he can recover more of their money.

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