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New York (HedgeCo.net) – The former owner and president of New York Financial Co. (NYFC) was sentenced yesterday to 132 months in prison for his role in a $1.6 million investment fraud scheme. In addition to the prison term, the Judge sentenced Sucarato to three years supervised release and ordered him to pay $1,165,280.04 in restitution.
Robert Sucarato, 42, of Holmdel, N.J., previously pleaded guilty before a U.S. District Judge to one count of wire fraud.
“Sucarato’s NYFC was purportedly a capital management and financial consulting firm with offices in New York City and Chicago.” Documents filed in this case reported. “Sucarato admitted he had established a “virtual office” in New York, which allowed him to claim a prestigious mailing address. The office space, conference rooms, and receptionists were shared with many other companies for a nominal rent.”
“Sucarato misrepresented that NYFC was registered as an investment advisor and portfolio manager; misrepresented his educational and professional background; falsely listed certain individuals as officers and managers of NYFC who were not; and otherwise created the false impression that NYFC was a successful, well-established and “leading capital management and financial consulting firm … with offices in New York and Chicago,” with superior management and a staff of “over 20 experienced traders.” The court heard.
Sucarato established two hedge funds – the NYFC Strategic Fund and the NYFC Diversified Strategic Fund. Sucarato admitted that he solicited investors through his website, falsely claiming that he had over $7.2 billion in assets under management. Sucarato created a false audit report, purportedly prepared by a major accounting firm, which falsely indicated that NYFC had a net worth of $798 million.
Investors provided Sucarato with more than $1.6 million. He deposited victims’ investments in bank accounts he controlled, and then transferred the victims’ money between those bank accounts so that he could use the money for personal expenses. Sucarato spent the investors’ money at various retail establishments, including Macy’s, Vermont Teddy Bear and L.L. Bean.
Texas financier R. Allen Stanford was convicted on Tuesday on 13 of 14 counts of fraud in connection with a $7 billion Ponzi scheme.
Three years had elapsed between Stanford’s being accused of the hedge fund fraud—which involved 30,000 investors in 113 countries—and Today’s decision. The trial was delayed because Stanford was beaten severely in a prison fight in 2010 after which he became addicted to prescription anti-stress drugs. He was subject to a year of therapy before being declared fit for trial, over the defense’s objections that he had lost much of his memory and could not defend himself.
Stanford had pled not guilty to all 14 counts, which included conspiracy, mail fraud, wire fraud and obstruction of a Securities and Exchange Commission investigation. He was convicted of all but one wire fraud charge in the trial, which took place in Houston and lasted six weeks.
The eight-man, four-woman jury had appeared to be deadlocked on Monday, when they’d sent a note to Judge David Hittner saying they were unable to reach unanimous agreement on all 14 counts. Hittner instructed them to continue their deliberations.
New York (HedgeCo.net) – Utah-based hedge fund managers Thomas Repke and James Jeffery were sentenced today to federal prison on charges of conspiracy to commit wire and mail fraud. The pair were principals of hedge fund operator known as Coadum Capital Advisors, which at its height (2005-2008) attracted nearly 250 investors and nearly $40 million in investments.
“The defendants in this major international investment fraud scheme defrauded over 200 victims around the country out of tens of millions of dollars, most of which has been dissipated in overseas accounts.” United States Attorney Sally Quillian Yates said, “They targeted seniors, retirees, and others simply looking for safe and secure returns, but now these corrupt managers will be in federal prison for years to come.”
Repke was sentenced to 10 years in prison to be followed by five years of supervised release. Jeffery was sentenced to seven years and three months in prison to be followed by five years of supervised release. Both had pleaded guilty.
Both defendants were ordered, jointly and severally, to pay $29,740,180 in restitution to over 200 victims.
This case is part of President Barack Obama’s Financial Fraud Enforcement Task Force, investigated by special agents of the FBI, based on a referral from the SEC.
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.
New York (HedgeCo.net) – New York Judge Robert W. Sweet issued an Opinion in favor of the SEC finding that United Kingdom-based hedge fund adviser Pentagon Capital Management PLC (PCM) and Lewis Chester, PCM’s Chief Executive Officer, engaged in securities fraud in violation of the Securities Act of 1933 and the Securities Exchange Act of 1934.
The SEC filed a civil action in April 2008 against United Kingdom-based hedge fund adviser Pentagon Capital Management PLC (PCM) and its Chief Executive Officer, Lewis Chester.
The complaint alleges that PCM and Chester orchestrated a scheme to defraud mutual funds in the United States and their shareholders through late trading and deceptive market timing. PCM’s advisory client, Pentagon Special Purpose Fund, Ltd., obtained approximately $62 million in illicit profits through this scheme, at the expense of U.S. mutual funds and their shareholders.
Judge Sweet found that Defendants PCM and Chester orchestrated a scheme to defraud mutual funds in the United States through late trading from February 2001 through September 2003.
Late trading refers to the practice of placing orders to buy, redeem, or exchange U.S. mutual fund shares after the time as of which the funds calculate their net asset value (usually as of the close of trading at 4:00 p.m. ET), but receiving the price based on the net asset value already determined as of 4:00 p.m. ET. Judge Sweet found that the Defendants “intentionally, and egregiously violated the federal securities laws through a scheme of late trading” through broker-dealer Trautman Wasserman & Company, Inc. (TW&Co.), and found that the scheme was “broad ranging over the course of several years and in no sense isolated.”
Judge Sweet further found PCM and Chester, together with Relief Defendant Pentagon Special Purpose Fund, Ltd., PCM’s advisory client, jointly and severally liable for disgorgement of $38,416,500 of profits from the U.S. mutual fund trades executed through TW&Co. plus prejudgment interest. Finally, Judge Sweet imposed civil penalties against Defendants in the amount of $38,416,500, equal to Defendants’ pecuniary gain for late trades through TW&Co.
The Court found in Defendants’ favor regarding charges of deceptive market timing of U.S. mutual funds.
New York (HedgeCo.net) – Koch Industries is being sued in relation to the biggest Ponzi scheme in U.S. history. The hedge fund fraud that Bernie Madoff pulled off received money from a Koch feeder fund, according to Irving Picard, the Trustee for the liquidation of Bernard L. Madoff Investment Securities LLC.
The company run by billionaire brothers Charles and David Koch, is being sued for $21.5 million, according to the complaint filed Feb. 9 in U.S. Bankruptcy Court in Manhattan. Madoff is currently serving 150 years in federal prison.
“The Koch entity involved made an investment in an entirely separate fund,” Melissa Cohlmia, a spokeswoman for Koch Industries said in an e-mail, according to Bloomberg. “That Koch entity no longer exists and its investment was redeemed in 2005, long before anyone knew of Madoff’s fraud.”
The case is Picard v. Koch Industries Inc., 12-01047, U.S. Bankruptcy Court, NY.
New York (Hedge Co.net) – Hedge fund manager Douglas Whitman and his California-based firm have been charged by the SEC with illegally profiting from insider tips on Google and Polycom, making $980,000 in the process.
The SEC alleges in a complaint dated February 10, that Whitman and Whitman Capital obtained insider information on Google and Polycom from an individual investor named Roomy Khan. The two conducted their business on Skype to avoid detection, the SEC said. Whitman Capital hedge funds reaped approximately $980,000 in ill-gotten profits.
In addition to tipping Whitman, the SEC says that Khan also passed the material nonpublic information that she obtained concerning Polycom and Google to investment professionals at other hedge fund advisers, including Raj Rajaratnam of Galleon Management LP., and Jeffrey Yokuty and Robert Feinblatt of Trivium Capital Management LLC. Like Whitman and Whitman Capital, both Galleon and Trivium used this information to reap sizable profits for the hedge funds they managed.
The SEC seeks permanent injunctions against each of the defendants, enjoining them from engaging in the transactions, acts, practices, and courses of business alleged in the SEC complaint; disgorgement of ill-gotten gains or losses avoided from the unlawful insider trading activity, together with prejudgment interest and civil penalties.
“New York (HedgeCo.net) – Obama’s financial fraud task force yesterday unveiled a hedge fund fraud case involving a “club” of high profile NY men, charged with insider trading involving computer company DELL. Of those seven, three people have been arrested, one surrendered, and three others have not been arrested as they cooperated with authorities, according to the FBI.
“It was a club where everyone scratched everyone else’s back,” U.S. Attorney Preet Bharara said. Court documents, he added, “paint a stunning portrait of organized corruption on a broad scale.
The NY FBI reports that among the charged are:
“Hedge fund Level Global Investors LP’s co-founder Anthony Chiasson, Todd Newman, a portfolio manager formerly at Diamondback Capital Management LLC, Jon Horvath, a hedge fund analyst in New York, and Danny Kuo, a fund manager for Whittier Trust Co. in South Pasadena, California.”
Seattle Times:
“U.S. Attorney Preet Bharara said nearly $62 million was earned through tips provided by a Dell employee to a former Dell worker who spread the information among his friends at at least five investment houses, including three hedge funds. He called it “a stunning portrait of organized corruption on a broad scale” and said it raised to 63 the number of people arrested in a government crackdown on insider trading. So far, there have been 56 convictions.”
Business Week:
“The U.S. government vowed to continue its five-year investigation into insider trading on Wall Street as it charged a fourth ring of hedge-fund traders with using illegal information to make millions of dollars.”
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New York (HedgeCo.net) – Hartline Investment Corp is under fire for recommending a $550 million Florida hedge fund that is now subject to lawsuit filed by the SEC. Five investors followed the advisers advice and put $11.6 million into the failing hedge fund.
Lead plaintiff Marsha Serlin claims that William Hart advised her to invest in an LP called Founding Partners Stable Value Fund I and II, Courthouse News reports.
Serlin claims Hart told her and the co-plaintiffs that the hedge fund was a great investment and very difficult to get into, but that he was a good friend of William L. Gunlicks (president, founder, CEO and sole shareholder), and would be able to get the plaintiffs in as well.”
Serlin calls it a case of crony capitalism, “Defendant Hart admits to having a 30-year friendship and professional relationship with William Gunlicks. This relationship has been highly profitable for Hart and was incentive for him to breach his fiduciary duty and other duties complained of herein.”
The plaintiffs seek $11.6 million in damages for breach of fiduciary duty, negligent misrepresentation and fraud, according to Courthouse News Services.
New York (HedgeCo.net) – Thomas Repke, of Salt Lake City, Utah, pleaded guilty to conspiracy to commit fraud. His codefendant and former business partner, James Jeffery of Ontario, Canada, pleaded guilty in April 2011. The jury trial was scheduled to begin on January 3, 2012.
Repke and Jeffery were the principals of a Utah-based hedge fund operator known as Coadum Advisors, which drew hundreds of investors nationwide into a series of investment funds from 2005-2008. The defendants pleaded guilty to conspiring to defraud their investors by lying to them about how their money was invested, what returns were being earned, and what balances investors held.
“Today, the lead defendant in a major international investment fraud scheme pleaded guilty to participating in a conspiracy that defrauded over 200 victims from across the country out of tens of millions of dollars, most of which was dissipated in overseas accounts.” United States Attorney Sally Quillian Yates said, “Like so many investment fraud schemes, this one was targeted at seniors, retirees, and others simply looking for safe and secure returns. The Financial Fraud Task Force will continue to root out fraud to restore faith and confidence in our investment system.”
Coadum Capital operated from 2005 through early 2008, which at its height attracted nearly 250 investors and nearly $40 million in investments. Coadum offered shares in hedge funds and advertised monthly returns often exceeding 5 percent.
Repke and Jeffery are said to have transferred over $20 million overseas to accounts in Switzerland and the Mediterranean island of Malta, paying themselves approximately $500,000 in cash over a two year period.
They each pleaded guilty to a conspiracy charge, which carries a maximum sentence of 20 years in prison and a fine of up to $250,000. Sentencing is scheduled for February 29, 2012.
New York (HedgeCo.net) – Two men claiming to run New Jersey-based hedge funds using a secret algorithm to invest in foreign currency have been charged for allegedly defrauding victims out of more than $3.5 million and spending the investments on high-end vehicles, luxury travel and five-figure bar tabs, The FBI reports.
George Sepero and Carmelo Provenzano, were arrested by FBI special agents on a criminal complaint charging them with wire fraud conspiracy.
“According to the complaint, Sepero and Provenzano used fake companies and phony reports to steal millions in real money from trusting investors,” the N.J. Attorney said. “With other people’s cash in their pockets, the defendants allegedly went on a spending spree involving luxury vehicles, international travel and extraordinary bar bills. Nobody asks to be defrauded, but those looking to invest should always be skeptical of rates of return that go so far beyond the norm.”
“I cannot stress enough the importance of investors exercising due diligence before trusting others with their money,” said Michael B. Ward, special agent in charge of the Newark, N.J., Division of the FBI. “The old adage ‘if it sounds too good to be true, it probably is’ remains constant. In this case, Sepero and Provenzano claimed to own a secret computer algorithm which would achieve returns of 170 percent or more at a time when financial markets were in flux. Instead, it was another of the many Ponzi schemes that have been uncovered in New Jersey wherein subjects are diverting money to support lavish lifestyles.”
According to the complaint unsealed in Newark federal court:
Beginning in 2009, Sepero and Provenzano claimed to run a series of hedge funds in New Jersey, luring investors with the prospect of extraordinary profits in foreign currency trading. The defendants made numerous misrepresentations and omissions to induce their victims to invest in “Pelt Capital,” “Caxton Capital Management,” “SP Investors Inc.” and “CCP Pro Consulting Inc.” Sepero and Provenzano claimed they owned and controlled a proprietary computer algorithm for trading foreign currencies; that they had used the algorithm to achieve returns of more than 170 percent in the prior two years; and that any investment funds would be highly liquid and could be withdrawn on days’ notice.
Sepero and Provenzano spent investor money on credit card bills averaging approximately $25,000 per month; bar tabs of approximately $18,241—including a $4,000 tip—and approximately $14,034 on separate nights at “Drai’s Hollywood” nightclub in Los Angeles; luxury hotel rooms for tens of thousands of dollars, including suites costing more than $4,000 at W Hotels in New York; and flights to Paris, Los Angeles, Chicago and elsewhere. Sepero also purchased a customized Ford F-350 “Harley-Davidson Edition” pickup truck costing more than $80,000 and Provenzano bought a luxury Range Rover Sport SUV costing more than $71,000, with a down payment of more than $65,000. The pair also spent victims’ money on other personal expenditures, including mortgage payments, home improvements, meals at high-end restaurants, jewelry and limousines.
The defendants furthered the scheme by e-mailing victims fake statements showing their principal had been invested in the foreign currency markets and was achieving substantial results. Many of these e-mails were purportedly sent by an individual named “Mel Tannenbaum,” a fictional character of Provenzano’s invention.
The defendants also e-mailed to several investors “screen shots” of a computer-based trading program, which they claimed represented the investors’ funds being traded in the currency markets. In reality, the shots reflected trading in fictional accounts set up by the coconspirators to dupe investors.
The wire fraud conspiracy count with which Sepero and Provenzano are charged carries a maximum potential penalty of 20 years in prison and a fine of $250,000 or twice the gain or loss from the offense.
New York (HedgeCo.net) – William Shternfeld and Benjamin Koifman have been sentenced in a NY court to 63 months each in prison for participating in a conspiracy to defraud investors of more than $18 million through a fraudulent hedge fund, the FBI reports.
Both men pled guilty to one count of conspiring to commit mail and wire fraud. Manhattan United States Attorney Preet Bharara said: “William Shternfeld and Benjamin Koifman preyed on the elderly to entice them into investing in their so-called fund.”
The fund in question is the AR. Capital Global Fund, LP. (“ARC Global Fund”), a purported hedge fund. Investor funds were wired to various bank accounts in Eastern Europe. The FBI said that the pair were expert cold-callers who solicited the vast majority of the funds from the ARC Global Fund’s victims, many of whom were elderly and lost most, if not all, of their retirement savings.
The ARC Global Fund received more than $18 million in investments before being shut down in September 2006.
In addition to their prison terms, the Judge sentenced Shternfeld and Koifman, both of Marlboro, New Jersey, to three years of supervised release each. He also ordered each to forfeit $7 million, which constitutes proceeds from their crime.
Five defendants were previously convicted and sentenced for their involvement in the ARC Global Fund fraud. Yevgeny Shvartsshteyn and Igor Levin were each sentenced to 87 months in prison. Daniel Ledven, Edward Veisman, and Alan Fishman were sentenced to 57, 46, and 37 months in prison, respectively.
New York (HedgeCo.net) – The former owner and president of New York Financial Co. (NYFC) was sentenced yesterday to 132 months in prison for his role in a $1.6 million investment fraud scheme. In addition to the prison term, the Judge sentenced Sucarato to three years supervised release and ordered him to pay $1,165,280.04 in restitution.
