Fake Hedge Fund Manager Accused Of Running Ponzi Scheme
Below is a recent article from Law360 that talks about a Ponzi-schemer defrauding his friends, clients, and their families out of nearly 19 million dollars. The facts of this case are classic:
1) Promises to get rich quick,
2) Preying on folks who are trusting and unsophisticated,
3) Lying about fictitious profits and positive returns while actually generating huge losses, and
4) All or nearly all of the money is gone by the time the fraudster is caught.
Starr Austen & Miller has represented hundreds of victims of such Ponzi schemes since 1982. If you or a loved one is the victim of investment fraud, call Starr Austen & Miller today for a free no obligation consultation.
Fake Hedge Fund Manager Accused Of Running Ponzi Scheme
By Tom Zanki of Law360.com
A Westchester County, New York, man was charged Thursday with securities and wire fraud after allegedly bilking clients in a $19 million Ponzi scheme involving a fake hedge fund and using investor money to pay personal bills, according to federal prosecutors and securities regulators.
The U.S. Attorney’s Office for the Southern District of New York and the FBI say that Michael Scronic stole more than $19 million from investors, telling them that their investments in his “Scronic Macro Fund” were profitable when in fact he was losing millions. Acting U.S. Attorney Joon H. Kim said Scronic also took investor money to support a “lavish” lifestyle that included payments on a Vermont vacation home and fees for various beach and country clubs.
Scronic is charged with one count apiece of wire and securities fraud, each carrying a maximum prison sentence of 20 years, according to the U.S. Attorney’s Office, which was assisted in its investigation by the FBI. He was scheduled to appear before U.S. Magistrate Judge Lisa Margaret Smith in White Plains, New York, federal court on Thursday.
“Scronic’s alleged get-rich-quick scheme was, in fact, a plan to deceive investors, luring them into a false sense of security about their investments by overselling the reliability and success of the fund,” FBI Assistant Director William F. Sweeney Jr. said in a statement.
The Securities and Exchange Commission, which filed a parallel civil complaint in federal district court, says the Scronic Macro Fund is a fictitious hedge fund that is not registered with the agency. The SEC is seeking a permanent injunction, disgorgement, and penalties against Scronic.
Since April 2010, Scronic raised more than $19 million from 45 investors, telling them his fund was generating positive returns while he was actually hemorrhaging their money through massive trading losses exceeding $15 million, the government says.
The SEC said Scronic, 46, of Pound Ridge, New York, raised the money from nearby friends and acquaintances in order to invest in a risky options strategy involving equity and index options and futures contracts in his personal brokerage account. For the period ending June 30, 2017, Scronic reported to investors total assets of at least $21,837,475, while the balance in his brokerage account was about $27,500, the SEC said.
In addition to losing money on trades, Scronic allegedly used investor money for personal expenses. The federal government says his personal bills averaged more than $500,000 a year since 2012, including monthly rent of $12,275 on his primary residence in Westchester; mortgage payments on a vacation home in Stratton, Vermont; fees for multiple beach and country clubs; and credit card charges averaging more than $15,000 a month.
The government says Scronic’s scheme began to fall apart when investors learned they were unable to redeem their investments despite assurances that they could.
“What’s cool about my fund is that i’m only in publicly traded options and cash so any redemptions are met within 2 business days so if you do need to withdraw for your business needs it will be quick and painless,” the SEC says Scronic told one investor.
But when investors sought to redeem their investments, the government said Scronic did not disclose his inability to pay them. Instead, federal prosecutors and the SEC say he provided a steady stream of excuses and, in some cases, took new funds from investors to satisfy the redemption requests of others, or ignored the requests altogether.
The SEC said Scronic was a registered representative associated with Morgan Stanley from 1998 to 2005, but is not currently registered in any capacity with the agency.
Contact information for Scronic was not immediately available. A lawyer for Scronic could not immediately be identified.
The government in the criminal case is represented by Assistant U.S. Attorney James McMahon and Special Assistant U.S. Attorney Daniel Loss.
The SEC’s investigation was conducted by Lindsay Moilanen, Daphne Downes, and Sheldon L. Pollock, and the case was supervised by Lara Mehraban, associate regional director of the SEC’s New York regional office. The SEC is being represented in court by Moilanen and Nancy A. Brown.
Case information for the U.S. Attorney’s Office criminal case was not immediately available.
The SEC case is Securities and Exchange Commission v. Scronic, case number 7:17-cv-07615, in the U.S. District Court for the Southern District of New York.
The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust.