A New York hedge fund manager who claimed to manage USD7bn in assets has been charged by the US Commodity Futures Trading Commission with fraudulently soliciting funds and concealing trading losses by issuing false accounts statements.
The CFTC announced last week that on 22nd April 2008, a federal court in New Jersey entered a statutory restraining order against defendant Robert J. Sucarato - who purported to run the New York Financial Company (NYFC) - freezing assets under Sucarato’s control, prohibiting the destruction of documents, and requiring Sucarato to account for assets.
The court’s order arises from a complaint filed under seal by the CFTC on the same day in the United States District Court for the District of New Jersey, charging Sucarato with fraudulently soliciting at least USD1.5mn from at least five individuals to participate in two commodity pools or 'hedge funds', and with concealing trading losses by issuing false account statements to participants in the pools.
The so-called hedge funds – the NYFC Diversified Strategic Fund and the NYFC Strategic Fund – operated under the management of NYFC, and purportedly invested in a variety of instruments, including commodity futures and options.
The complaint also charged Sucarato with failing to register as a commodity pool operator (CPO) and failing to comply with CPO regulatory requirements in connection with his operation of the pools.
According to the complaint, beginning in at least September 2004 and continuing to the present, Sucarato, as president of NYFC, fraudulently solicited individuals to participate in his hedge funds by falsely claiming, among other things, that: he had managed the Funds since 1993 with approximately USD7bn in assets; his funds routinely outperformed the market, having achieved a ten-year compounded return exceeding 1,800%; and that NYFC was a registered investment adviser and portfolio manager.
In support of his misrepresentations, Sucarato allegedly used a false audit report, purportedly prepared by a major accounting firm, reflecting that NYFC had a net worth of over USD800mn.
Sucarato sought to create the false impression that NYFC is a successful, well established capital management firm with offices in New York and Chicago, and staffed with more than 20 experienced traders. However, as charged in the complaint, Sucarato’s New York and Chicago operations were mere virtual offices.
“The sophistication required to fabricate an established management firm with a winning earnings record and the financial statements to back it up will not go unchallenged by a robust enforcement program. Once again, our enforcement program has exposed layers of deceit in the solicitation and management of a hedge fund,” announced Gregory Mocek, Director of Enforcement at the CFTC.
The complaint further alleged that after convincing individuals to participate in the pools, Sucarato provided performance reports to pool participants reflecting, among other trading results, that NYFC was consistently highly profitable trading commodity futures and options on behalf of the pools.
In reality, however, Sucarato held commodity futures and options trading accounts in his name only, and sustained net losses almost every month he traded commodity futures and options.
To the extent that Sucarato did not use pool participants' funds to trade in his personal commodity futures and options accounts, the disposition of the participants’ funds is unknown.
Since at least April 2007, pool participants, whose performance reports reflected that their investments had increased in value, have demanded that Sucarato liquidate their accounts and return their funds. The checks issued by Sucarato to cover these redemption requests were returned for insufficient funds.
The court set a hearing on the CFTC’s request for a preliminary injunction for 8th May. The CFTC is seeking a permanent injunction against the defendants, disgorgement, restitution, and civil monetary penalties.
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