Hedge Fund Fraud Leads to Criminal Convictions

Francisco Illarramendi has been sentenced to 13 years behind bars for a Connecticut securities scam that involved hundreds of millions of dollars from the state oil company of Venezuela. The 45-year-old ex-hedge fund manager said he committed the crimes to conceal investment losses and because he was pressured by corrupt government officials in the South American country.

Illarramendi, a Venezuelan-American, devised a currency arbitrage market that he claims made $60 billion for the government in Caracas, which kept it from failing. In 2005, he began his hedge fund scam to conceal $5 million in losses in a failed bond transaction that was made for the Venezuelan government. Illarramendi contends that he and his family were threatened with violence if they refused to go along.

The judge, however, noted that the former hedge fund manager took $20 million for his own purposes. In time, the fraud grew as Illarramendi continued to use his hedge funds to cover what now exceeded over $500,000 million. He also paid million of dollars in bribes to government officials in Venezuela for sending the oil company’s money to him, which he invested. Illarramendi pleaded guilty to fraud and conspiracy to obstruct justice in 2011. To date, the court appointed receiver has recovered enough to pay investor claims of over $345 million but more needs to be recovered.

Meantime, in the U.K., hedge fund manger Magnus Peterson has been found guilty of fraud, false accounting, forgery, and fraudulent accounting in an unrelated case. Peterson founded Weavering Capital.

Investors lost $536 million when Weavering Macro Fund failed in 2009. The fund had been marketed as producing returns that were stable and low risk. Instead, it collapsed after the discovery that a multimillion-dollar trade in the flagship fund was connected to an offshore company that Peterson controlled.

The U.K.’s Serious Fraud Fund accused Peterson of misleading investors for several years and working with swap trades to artificially inflate the Weavering Macro Fund’s performance. He took about $8.8 million of investors’ money.

Hedge Funds
These are minimally regulated private investment partnerships that typically only accept wealthy investors. These investment vehicles usually have a lot of flexibility when it comes to investment strategies that may be used.

Hedge funds can invest in bonds, equities, futures, options, arbitrage, commodities, illiquid investments, and derivative contracts. They can be very profitable when the market is volatile and are not for all investors.

The SEC and the Commodities Futures Trading Commission say there are several signs of hedge fund fraud:

• Audit problems • Lack of independence when trading • Investor complaints • Hedge fund fraud lawsuits have already been brought • Strong performance claims that are unusual • Valuation problems • Hedge fund mangers trading in their accounts
Hedge fund fraud can lead to investment losses. Contact our Hedge fund securities lawyers today.

Hedge Fund Information for Investors, FBI

London Hedge Fund Founder Sentenced to 13 Years in Prison, The New York Times, January 23, 2015

Boss Of Largest Ponzi Scheme In Conn. History Gets 13 Years, Law360, January 30, 2015

Hedge fund boss who cost investors £350MILLION when his Mayfair-based firm collapsed due to his rogue trading is jailed for 13 years, DailyMailUK, January 23, 2015

More Blog Posts:
California Insider Trading Ring Made Almost $750K in Illegal Profits, Says the SEC, Stockbroker Fraud Blog, February 5, 2015

UBS Settles SEC Dark Pool Case for $14M, Stockbroker Fraud Blog, January 16, 2015
NY Sues Barclays Over Alleged High Speed Trading Favors in Dark Pool, Stockbroker Fraud Blog, June 26, 2014