SEC Charges Investment Adviser with Fraud

(HedgeCo.Net) Steven Fitzgerald Brown has been charged with fraud arising from his operation of investment pool Alpha Trade Analytics, Inc.

The SEC’s complaint, filed on September 3, alleges that Brown, the CEO, president, and sole owner and director of Alpha Trade, engaged in a Ponzi-like scheme using Alpha Trade’s investment fund. The complaint alleges that Brown, as investment adviser to the fund, raised approximately $7.5 million from more than 75 investors, claiming that the fund would invest in the financial markets, including by trading securities. The complaint further alleges that Brown guaranteed investors a fixed-rate payout ranging from 8-12% per month, falsely promised that the investments were safe and risk-free, and claimed that all losses would be borne by the fund. According to the complaint, in reality, Brown operated the fund as a Ponzi-like scheme, investing less than 3% of investors’ money in financial markets, and using new investor funds to pay existing investors their promised returns and the return of their principal. Brown also allegedly misappropriated or misused investor funds for his own benefit.

The complaint charges Brown with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Without admitting or denying the allegations of the SEC’s complaint, Brown consented to the entry of a judgment imposing a permanent injunction, which is subject to court approval. The complaint also seeks the return of ill-gotten gains plus prejudgment interest and civil penalties to be determined by the court upon a motion filed by the SEC.

In a parallel action, the United States Attorney’s Office for the Central District of California announced on September 3 that it filed criminal charges against Brown arising from the same conduct alleged by the SEC.

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