The SEC's complaint contests that New York-based investment adviser also failed to conduct a "reasonable investigation" into red flags concerning the Bayou hedge funds.
Mr Gradante and Hennessee are alleged to have decided against performing portfolio and trading analysis on Bayou's funds after it refused to produce relevant data.
Nevertheless, between February 2003 and August 2005 around 40 Hennessee clients invested millions of dollars in Bayou funds on the firm's recommendation.
The SEC added that both the Hennessee Group and Mr Gradante routinely told existing and prospective clients that they would not recommend hedge fund investments that did not satisfy all the elements of the firm's review and analysis process.
Antonia Chion, the associate director of the regulator's enforcement division, said: "As the commission found, these investment advisers failed to honor the representations they made to their clients and did not disclose these material departures from their advertised services."
Hennessee Group was founded in 1987.