New York (HedgeCo.Net) – A North Carolina hedge fund manager who created fictional bank personnel to trick his auditor while he was defrauding investors has agreed to plead guilty to one count of securities fraud.
James Shepherd, of Vass, North Carolina, defrauded over 100 investors of around $6 million, according to filed court documents and court proceedings.
“Shepherd was able to obtain the Independent Auditor’s Report each year by tricking the accountant who provided it. According to common practice at the time, the accountant would send a letter of inquiry to the bank the fund held its account, requesting the fund’s cash balance. On each occasion, the accountant sent the inquiry letter to the bank’s P.O. Box address provided by Shepherd and to the attention of “Charles Fisher,” who was purportedly working at the bank. In each instance, records show that the accountant would then receive a letter or fax confirmation from Charles Fisher verifying the Major Play Fund’s bank balance, as well as a copy of the bank statement confirming the cash balance of the fund. In reality, court documents indicate, Charles Fisher was a fictitious bank employee. Shepherd would forge the name Fisher on a fake bank letter and send forged bank statements with fake balances. Shepherd generated the fraudulent bank statements using a version of Adobe Acrobat that enabled him to type false numbers over true bank statements. Shepherd also controlled the P.O. Box the accountant’s letters were mailed to and controlled the fax number that supposedly belonged to Charles Fisher at the bank.” The FBI said.
Shepherd used the funds to pay investors of his hedge fund, to trade in his personal accounts, and to fund the operations of his newsletter, which offered investment news and advice to thousands of subscribers. Shepherd also used the money to fund his personal lifestyle.
Shepherd faces up to 20 years in prison and a $5 million fine. As part of his plea agreement, Shepherd agreed to pay restitution to his victims. In related news, the CFTC also filed a civil suit against Shepherd.
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