Hedge Funds

Hedge Fund Fraud Cases: Adviser is Accused of Short-and-Distort Scam and Digital Asset Manager Faces Misrepresentation Allegations

Published on: September 12, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The SEC has filed fraud charges against hedge fund adviser Gregory Lemelson and his Massachusetts based investment advisory firm Lemelson Capital Management LLC. The regulator is accusing them of illegally profiting over $1.3M from an alleged short-and-distort scheme that involved Ligand Pharmaceuticals.

According to the hedge fund fraud allegations, Lemelson and his investment advisory firm put out false information about the San Diego-based pharmaceutical company after the hedge fund adviser took a short position in Ligand for The Amvona Fund. Lemelson is a part owner and advisor of this other hedge fund.

The SEC’s complaint said that Lemelson’s false statements were meant to rattle investor confidence in Ligand, drive its stock price down, and increase his short-position’s value. He allegedly used interviews, written reports, and social media to disperse the false claims.

Platinum Partners Principal Pleads Guilty to Fraud

Published on: May 23, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Murray Huberfeld, a Platinum Partners principal, has pleaded guilty to allegations that he was involved in a wire fraud conspiracy. However, he has not admitted a guilty plea to related to an alleged $1B scam involving his hedge fund.

Huberfeld admitted to misleading his hedge fund when he falsely claimed that a $60K payment was to pay for Knicks tickets when, in truth, it was a bribe to ex-New York City jail union boss Norman Seabrook to invest pension cash.

The money had been issued to fixer Jona Rechnitz. She has since turned government witness in a number of federal corruption probes. The bribe resulted in the Correction Officers Benevolent Association investing $20M in Platinum.

Massachusetts Hedge Fund Manager Sentenced to Prison for Investor Fraud

Published on: May 3, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Yasuna Murakami, a hedge fund manager who oversaw MC2 Capital Management LLC And MC2 Canada Capital Management LLC, is sentenced to six years in prison for fraud. Prosecutors accused him of defrauding hedge fund investors. Additionally, Murakami, must pay over $10.5M in investor restitution.

Police arrested the Massachusetts hedge fund manager last year. When pleading guilty to wire fraud, Murakami acknowledged that he diverted millions of dollars in investor monies to his own personal and business accounts, as well as used their funds to pay for a luxury sports car, make credit card payments, travel abroad, make purchases at expensive department stores, initiate investments on his own behalf, and issue Ponzi-like payments to investors.

Yasuna Murakami and Former Business Partner Were Working Together to Defraud Investors

Securities Industry Headlines: Convicted Hedge Fund Manager Martin Shkreli Gets Seven Years, Zohar Investment Funds File for Bankruptcy Protection, and Ex-Morgan Stanley Investment Adviser Named in $34M Securities Arbitration Loss Lands at Pinnacle

Published on: March 13, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Martin Shkreli to Go to Prison for Seven Years

A federal judge has sentenced former hedge fund manager Martin Shkreli to seven years behind bars. Shkreli was found guilty of defrauding investors of his MSMB Capital Management hedge fund while manipulating the stock of his drug company Retrophin.

His defense team had fought for a lower sentence—12 to 18 months. They pointed out that ultimately none of the investors that Shkreli bilked lost money and he didn’t profit from his fraud. Prosecutors countered that, in fact, Shkreli had caused anywhere from $9M to $20M in losses.

A few days before his criminal sentence was issued, Judge Kiyo Matsumoto ordered that about $7.36M of the ex-hedge fund manager’s assets be surrendered, including a rare Wu-Tang Clan album that he purchased for $2M. Shkreli’s legal team plans to appeal the sentence.

Judge Rules that Martin Shkreli Will Be Held Responsible for $10.4M in Investor Losses

Published on: February 26, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Us District Court Judge Kiyo Matsumoto has ruled that Martin Shkreli is going to be held responsible for $10.4M in financial losses sustained by investors after he is sentenced for his crimes. Shkreli, who was found guilty of two counts of securities fraud and one count of conspiracy to commit securities fraud, had tried to argue that he wasn’t responsible for those losses, seeing as investors eventually profited when he partially paid them back with Retrophin stock while he was the CEO of that pharmaceutical company.

The fraud charges are related to his running of the investment funds MSMB Capital, Elea Capital, and MSMB Healthcare. Federal prosecutors accused him of bilking investors of more than $11M in a Ponzi scam. Shkreli also is accused of lying to investors, including failing to tell them when two of the hedge funds he operated failed. Prosecutors contend that Shkreli was the cause of somewhere between $9M and $20M in investor losses.

Judge Matsumoto’s ruling regarding Shkreli’s financial responsibility is more about determining the length of the recommended prison term he should get and not about how much he owes the government, along with his sentence. With this latest ruling, Shkreli could face up to 20 years behind bars. Previous to that, his defense attorneys were hoping to get him either no time in prison or under 16 months. However, the higher the loss involved in a crime, federal guidelines recommend the calculation of a longer prison term.

SEC Stops Alleged $5.3M Hedge Fund Fraud Involving Willow Creek Advisors

Published on: February 5, 2018 | by Shepherd Smith Edwards & Kantas, LLP

The US Securities and Exchange Commission has filed securities fraud charges against Nicholas Joseph Genovese. The regulator contends that the purported hedge fund manager and his Willow Creek Advisors LLC misappropriated at least six investors’ money to pay for securities trading in his own brokerage account. Now, the SEC wants a temporary restraining order to freeze assets and stop further alleged violations.

According to the Commission’s complaint, Genovese misrepresented his previous experience in the securities industry and as a money manager, as well as the size of his business, including, that he:

· Oversaw $4B of the assets belonging to the Genovese Drug Store family.

· Ran Willow Creek Investments LP with $30B-$39B of assets under management when that figure was closer to less than $10M.

· Falsely stated that he and Willow Creek Advisors employed up to 60 people when the reality was closer to under 10.

· Claimed that his hedge fund made 30-40% investment gains annually when losses where what were actually incurred.

· Hid is criminal history, including, according to news sources, past convictions for forgery and grand larceny.

· Did not tell investors he previously filed for bankruptcy.

· Touted an education and professional history that he’d fabricated, including that he was a former Goldman Sachs (GS) partner and an ex-Bear Stearns portfolio manager, as well as had earned an MBA from Dartmouth.

Criminal Securities Fraud: Former ArthroCare CFO is Sentenced in $750M Scam, Ex-Lawyer of Marti Shkreli is Convicted for Concealing Financial Scheme, and former Bankrate CFO is Accused of Rigging The Firm’s Books

Published on: January 5, 2018 | by Shepherd Smith Edwards & Kantas, LLP

Ex-CFO of ArthroCare Gets Prison Term for $750M Securities Fraud
Michael Gluck, the ex-CFO of ArthroCare Corp., is sentenced to over four years in prison for his role in a $750M financial fraud. Gluk pleaded guilty to securities fraud and conspiracy to commit wire fraud last year.

Gluk, ex-ArthroCare CEO Michael Baker, and others are accused of artificially inflating revenue and sales in an effort to keep the medical device company’s stock price up. As a result, shareholders sustained more than $750M in losses.

Baker was sentenced to 20 years behind bars. Gluk had previously been sentenced to 10 years in prison after he was convicted in 2014 for his role in the scam. However, a federal appeals court overturned the conviction, hence his new plea agreement and sentence. He also must forfeit nearly $678K and pay a $50K fine.

Hedge Fund Managers Settle SEC Charges Accusing Them of Sharing Confidential Investment Information with Each Other

Published on: December 5, 2017 | by Shepherd Smith Edwards & Kantas, LLP

Nehal Chopra, founder of the hedge fund Ratan Capital Management, and her husband Paritosh Gupta have settled US Securities and Exchange Commission charges alleging that they acted improperly: He, by sharing confidential investment recommendations with her and she, by not disclosing to her clients that her husband was the one who gave her this information.

Gupta worked at Brahman Capital, a hedge fund firm. He later launched Adi Capital Management, also a hedge fund firm. Brahman and Ratan are competitors in their field.

According to the SEC, Gupta provided Chopra with information developed for Brahman’s own clients, as well as the timing of Brahman’s sizes and positions, and he advised her about certain investments. In one example noted by the regulator, Gupta asked his wife about the size of her firm’s position in one security. After she responded, he advised her to increase that position. Ratan would go on to buy more shares that day.

Texas REIT UDF Files Lawsuit Accusing Hedge Fund Manager of Damaging False Statements

Published on: November 30, 2017 | by Shepherd Smith Edwards & Kantas, LLP

The United Development Funding, a beleaguered Texas real estate investment trust accused of running a $1B Ponzi-like scam, is suing a hedge fund manager for the allegedly “false and disparaging” statements that led to the fraud allegations.

The REIT came under fire two years ago after an investor website issued a report accusing UDF IV of being run like a Ponzi scam. For the last two years, our Texas securities fraud lawyers at Shepherd Smith Edwards and Kantas LTD, LLP has been fielding calls from investors who suspect they may have suffered financial losses from investing in UDF Funds.

According to UDF’s complaint, filed in Dallas County, hedge fund manager Kyle Bass and his Hayman Capital Management are the ones that anonymously published the Ponzi allegations online and then later on a proprietary site. They allegedly did this to damage the UDF Funds.

In its filing with the US Securities and Exchange Commission about the complaint, the REIT accused the defendants of engaging in “false and disparaging statements,” including that: the UDF Funds were part of a Ponzi fraud, they were unable to run their own business, had insolvency problems that made their shares “worthless,” their real estate developments that were “not genuine,” and they “misappropriated” investors’ funds. The filing countered that the UDF Funds were “successful” and had actual real estate developments. The REIT claims that because Bass had set up a “large short position” in the Texas REIT before publishing the false allegations, he and his company “profited” from the damages wreaked by their claims.

Bass had a short position in the REIT. Once he disclosed this news, United Development Funding shares plunged in price. In response to this lawsuit, the hedge fund manager claims it is meritless.

Ex-Hedge Fund Manager Martin Shkreli is Convicted of Securities Fraud

Published on: August 7, 2017 | by Shepherd Smith Edwards & Kantas, LLP

A jury has found former pharmaceutical CEO and hedge fund manager Martin Shkreli guilty of securities fraud in connection with his two hedge funds, MSMB Capital and MSMB Healthcare, as well as of conspiracy to commit securities fraud involving shares of the drug company Retrophin, which he founded.

Prosecutors had said that Shkreli misled investors, losing their money on bad stock picks while scheming to try recover millions of dollars of these losses. At one point, Shkreli claimed he had $40M in one hedge fund when it had only $300 in the bank.

That said, prosecutors experienced some challenges in proving their criminal case against the ex-hedge fund manager. For example, during the trial, a number of rich Texan financiers admitted that Shkreli’s scam made them money, sometimes even double or triple of what they invested, when Retrophin’s stock went public.