On February 4, 2022, Judge William M. Conley of the United States District Court for the Western District of Wisconsin granted in part the SEC's motion for summary judgment against Edward S. Walczak, a former mutual fund portfolio manager who the SEC alleged fraudulently misrepresented to investors how he would manage risk in the Catalyst Hedged Futures Strategy Fund.

The court ruled that the SEC was entitled to summary judgment on certain of its negligence-based fraud claims against Walczak. The court found that Walczak repeatedly told investors that he used modeling software to stress test the Fund's portfolio on a daily basis, when, in fact, Walczak did not use the software on a daily basis. The court further held that Walczak's misstatements that he stressed the portfolio daily were material given that risk management was of considerable concern to potential investors and investment advisers and that the Fund's strategy subjected it to possible dramatic swings in value. The court reserved judgment for the jury whether Walczak acted with scienter with respect to these misstatements and whether Walczak should be liable for other alleged misstatements concerning his management to an 8% drawdown limit on the Fund's value.

As a result of the above findings, the Court held that Walczak violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder.

The SEC previously announced a related settled action against the Fund's investment adviser, Catalyst Capital Advisors LLC and its President and Chief Executive Officer, Jerry Szilagyi.

The SEC's investigation was conducted out of the Chicago Regional Office jointly by the Asset Management Unit and Complex Financial Instruments Unit. David Benson and Jake Schmidt led the investigation, with assistance from Terrence Moran and under the supervision of Paul Montoya and Jeffrey Shank. The SEC's litigation against Walczak is led by Senior Trial Counsel Michael Foster along with Benson, Schmidt, and Kristine Rodriguez.