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DOJ Charges 5 Persons Criminally In NYC Church Scam
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(April 16, 2009 - Thursday) - http://online.wsj.com/article/BT-CO-20090414-711158.html
By Chad Bray
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Five senior managers of a Long Island hedge fund firm, including its chief executive, were indicted Tuesday in a scheme that defrauded members of their Queens church and others out of more than $10 million, prosecutors said.
The five men - all members of senior management at Jadis Capital Inc. in Uniondale, N.Y. - were charged with conspiracy and two counts of securities fraud, according to an indictment unsealed Tuesday. They face up to 20 years in prison on the securities fraud charges. The criminal case was brought by the U.S. Attorney's office in Brooklyn, N.Y.
They are: Isaac I. Ovid, Jadis' chief executive; Aaron Riddle, the firm's chief financial officer; J. Jonathan Coleman, its chief marketing officer; Timothy Smith, the firm's chief business strategist; and Riddle's father Robert Riddle, its Northeast Regional vice-president of sales.
"These defendants abused their positions of influence and trust to solicit investments by fraud and line their own pockets," U.S. Attorney Benton J. Campbell said in a statement. "They will now be held accountable for their actions."
Ovid, 28 years old, a citizen of Trinidad and Tobago, resigned from the firm in November 2005, while Aaron Riddle, 34, of Narvon, Pa., resigned in October 2005.
The U.S. Securities and Exchange Commission separately charged the men and two others in a civil fraud case. They all were senior leaders in the church, which has branches in Queens, N.Y., and Reading, Pa.
The SEC said the case targeted mostly elderly parishioners at the church and defrauded investors out of more than $12 million.
"Today's action is especially egregious as church leaders targeted their own parishioners and betrayed the sincere trust placed in them," said Robert Khuzami, director of the SEC's Division of Enforcement.
Ovid; Coleman, 40, of Astoria, N.Y.; Smith, 35, of Ephrata, Pa.; and Robert Riddle, 59, of New Holland, Pa.; have never been registered with the SEC.
Lawyers for the men didn't immediately return phone calls seeking comment Tuesday.
The five persons charged criminally are expected to appear before a federal magistrate judge in Brooklyn later Tuesday.
The alleged fraud revolved two hedge funds, the Logos Multi-Strategy I LP and the Donum Fund LP.
The funds were marketed as having a minimum investment requirement of $500,000 and would only be marketed to accredited investors having a net worth of more than $1 million.
Many of the Logos investors were affiliated with the church, but did not meet the net worth or income thresholds to qualify as accredited investors under federal law, prosecutors said. The Logos fund was founded in February 2005.
The men and their firm accepted "whatever investment they could obtain from investors" and encouraged some potential investors to transfer their retirement savings or take out home equity loans so that they could invest more money, prosecutors said.
The men alleged raised about $9.3 million for the Logos fund, prosecutors said.
The SEC said the men raised more than $9 million from 80 investors in the Logos Fund between January 2005 and October 2005 and promised returns as high as 50% or 75%.
Marketing materials for the Logos fund misrepresented the trading performance average of a number of traders at Jadis Capital, claiming that junior traders had a "55% batting average" and senior traders had a "90% batting average."
Ovid, an ordained minister in the church, allegedly began trading with investor money from the Logos Fund in May 2005 and quickly incurred more than $2 million in trading losses, prosecutors said. He and others didn't inform investors of the catastrophic losses, which depleted almost all of the money in the fund at the time, prosecutors said.
Logos fund investor money was used to purchase luxury items for the men and others, including a $200,000 Bentley automobile; to pay the substantial operating and payroll expenses of Jadis Capital, including more than $1 million in credit card debt and $1.6 million for the renovation of the Jadis offices; and to pay debts Ovid previously incurred in his dealings with prior clients, prosecutors said.
By October 2005, more than 80% of the money in the Logos Fund was lost trading or had been spent by the men, prosecutors said.
In August 2005, they created the Donum Fund, which focused on soliciting larger institutional investors. Prosecutors said the Donum Fund was marketed in the same manner as the Logos Fund and included similar misrepresentations about performance.
They received an investment of $3 million from a Panamanian investment firm in September 2005, prosecutors said.
They represented the Logos Fund had a historical return of 15% to 22%, when the fund was almost entirely depleted, prosecutors said.
The SEC said the Donum Fund was created "with the intention of diverting the proceeds to pay back investors in the first scheme."
Prior to the investment, the men allegedly staged a false presentation to two individuals conducting a due diligence review for the Panamanian firm in September 2005, prosecutors said.
Ovid, who was supposed to be the only trader for the Donum Fund, stayed away from the office and other, older member of the Jadis Capital staff posed as traders of the funds, prosecutors said. They were concerned Ovid's appearance and age might discourage the Panamanian firm from investing, prosecutors said.
-By Chad Bray, Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com
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