Hedge fund charged with running Ponzi scheme

The SEC today charged an unregistered hedge fund with operating a large-scale scheme that it said defrauded hundreds of investors millions of dollars.
DEC 07, 2009
By  Bloomberg
The Securities and Exchange Commission today charged an unregistered hedge fund with operating a large-scale scheme that it said defrauded hundreds of investors millions of dollars by overstating investment returns and misrepresenting the value of assets under management. The SEC said it is seeking a court order to freeze the assets of Westgate Capital Management LLC of Pearl River, N.Y., and its managing member, James Nicholson of Saddle River, N.J. He is a former registered representative who was permanently barred in 2001 by NASD, now the Financial Industry Regulatory Authority Inc. of New York and Washington, the SEC said. Investors were solicited by the firm “with false claims of an almost unbroken eight-year string of monthly investment successes,” the SEC said in a release. The U.S. Attorney’s Office in New York also announced parallel criminal charges against Mr. Nicholson today, the SEC said. He and Westgate defrauded investors in 11 unregistered hedge funds that they managed by misrepresenting the value of the hedge funds to investors and soliciting new investors with sales materials that claimed a “nearly impossible record of investment success,” the SEC said. At least one Westgate fund claimed positive returns in 98 of 99 consecutive months, the SEC said. By late last year, the funds had sustained such losses that redemption requests could no longer be honored, the SEC said. Mr. Nicholson created a fictitious accounting firm under the name of an actual accountant and provided investors with bogus audited financial statements, the SEC said. In a statement that brought to mind the Ponzi scheme alleged against Bernard L. Madoff Securities LLC of New York, Scott Friestad, deputy director of the SEC’s Division of Enforcement, said in the release: “If it seems too good to be true, it probably is.”

Latest News

SEC bars ex-broker who sold clients phony private equity fund
SEC bars ex-broker who sold clients phony private equity fund

Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.

The key to attracting and retaining the next generation of advisors? Client-focused training
The key to attracting and retaining the next generation of advisors? Client-focused training

From building trust to steering through emotions and responding to client challenges, new advisors need human skills to shape the future of the advice industry.

Chuck Roberts, ex-star at Stifel, barred from the securities industry
Chuck Roberts, ex-star at Stifel, barred from the securities industry

"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.

SEC to weigh ‘innovation exception’ tied to crypto, Atkins says
SEC to weigh ‘innovation exception’ tied to crypto, Atkins says

Chair also praised the passage of stablecoin legislation this week.

Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest
Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest

Maridea Wealth Management's deal in Chicago, Illinois is its first after securing a strategic investment in April.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.