New York (HedgeCo.net) – The FBI and the IRS announced that a federal grand jury returned an indictment against hedge fund managers Jonathan Davey, Jeffrey Toft, Chad Sloat and Michael Murphy on four criminal charges relating to a hedge fund fraud conspiracy.
The indictment states that the defendants operated “hedge funds” as part of a conspiracy that took in $40 million from victims for a Ponzi scheme operating under the name Black Diamond Capital Solutions (Black Diamond).
“The defendants lied to get money from their victims by claiming, among other things, that they had done due diligence on Black Diamond and were operating legitimate hedge funds with significant safeguards, when in reality, neither claim was true.” The indictment reads.
The indictment also charges Davey with tax evasion for claiming to the IRS on his 2008 tax return that $810,000 that Davey stole from victims was a “loan.” In reality, the indictment charges, Davey stole that $810,000, plus approximately $500,000 in 2009, from victims to build Davey’s personal mansion. Davey attempted to evade the taxes due and owing in 2008 by calling the money a “loan” from his investors to “Sovereign Grace, Inc.,” a Belizian corporation that Davey created as a diversion for his victims and the IRS.
The first charge against carries a maximum sentence of five years’ imprisonment and a fine of up to $250,000. The second charge carries a maximum sentence of 20 years’ imprisonment and a fine of up to $250,000. The third charge carries a maximum sentence of 20 years’ imprisonment and a fine of $250,000 or twice the amount of criminally derived proceeds. The final charge against Davey only, alleging tax evasion, carries a maximum sentence of five years’ imprisonment and a fine of up to $250,000.
The defendants will be making their initial appearances in court in the coming weeks.
Seven other defendants have also been convicted in this case. Bryan Coats, Deanna Salazar, Jeffrey Muyres, James Jorda, Roy Scarboro and Stephen Lacy all had their sentences reduced by the Court to reflect their cooperation with the investigation and prosecution of the others.
Alex Akesson
Editor for HedgeCo.net
alex@hedgeco.net
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