Five Founders and Marketers of Two Hedge Funds Indicted on Conspiracy and Securities Fraud Charges
Investor Losses Total Approximately $10 Million
A federal grand jury in Brooklyn returned an indictment charging Isaac Ovid, Aaron Riddle, Joseph Jonathan Coleman, Timothy Smith, and Robert Riddle, all members of senior management at Jadis Capital, Inc., an investment firm located in Uniondale, New York, with conspiracy and securities fraud.1 The defendants are scheduled to be arraigned later today before United States Magistrate Judge Roanne L. Mann, at the U.S. Courthouse, 225 Cadman Plaza East, Brooklyn, NY. The case has been assigned to United States District Judge John Gleeson.
The charges were announced by Benton J. Campbell, United States Attorney for the Eastern District of New York, and Joseph M. Demarest, Jr., Assistant Director-in-Charge of the Federal Bureau of Investigation, New York Field Office.
According to the indictment, in October 2004, Ovid, Riddle, and Coleman, and others, created Jadis Capital, which, in turn, started two hedge funds, the Logos Multi-Strategy I, LP, and the Donum Fund, LP, in February 2005 and August 2005, respectively. The five defendants marketed the funds to prospective investors, including members of a church in Forest Hills where each of the defendants held leadership positions, and collected approximately $9.3 million in investments in the Logos Fund and approximately $3 million in investments in the Donum Fund. In marketing the funds, the indictment and a previously filed complaint allege that the defendants made material misrepresentations and omissions in private placement memoranda (PPM) and other marketing materials about the management, supervision, and historical and expected trading performance of the funds.
According to the PPM, the funds had a minimum investment requirement of $500,000 and would be marketed only to accredited investors having a net worth in excess of $1,000,000. In fact, the defendants marketed the funds predominantly to the members of their church congregation, most of whom could neither afford the $500,000 minimum investment nor meet the net worth requirement. According to the government’s pleadings, Coleman encouraged his co-conspirators not to limit marketing of the Logos Fund to those who could invest the Fund’s stated minimum investment, but to solicit those “near and dear” to them, whom they knew they could “influence.”
Instead of using the investors’ capital to support the two funds, the defendants allegedly used the vast majority of investor money to purchase lavish gifts for their friends and themselves, including a $200,000 Bentley automobile used by Ovid and others; to pay the inflated operating and payroll expenses of Jadis Capital, including an approximate $1.6 million renovation of the Uniondale offices; and to satisfy debts that Ovid incurred before starting Jadis Capital. In September 2005, the defendants, without disclosing the misappropriation of investor funds and extremely poor trading performance of the Logos Fund, fraudulently solicited and accepted a $3,000,000 investment from another victim for the Donum Fund. In total, the indictment alleges that the defendants collected approximately $12.3 million in investments for the two funds and either lost or spent $10.2 million of investors’ money.
“These defendants abused their positions of influence and trust to solicit investments by fraud and line their own pockets,” stated United States Attorney Campbell. “They will now be held accountable for their actions.” Mr. Campbell expressed his grateful appreciation to the Federal Bureau of Investigation, the agency responsible for leading the criminal investigation, and thanked the United States Securities & Exchange for its assistance.
FBI Assistant Director-in-Charge Demarest stated, “This case represents yet another example of how the markets for securities and other investments can be used to prey on unsuspecting investors and damage the confidence of the investing public. The FBI is making every effort to address this significant crime problem and bring those responsible to justice.”
If convicted of securities fraud, the defendants face maximum sentences of 20 years of imprisonment. If convicted of conspiracy, they each face a maximum sentence of five years.
The United States Securities & Exchange Commission announced today that it has filed civil charges against the defendants.
The government’s criminal case is being prosecuted by Assistant United States Attorney James G. McGovern.
Name: ISAAC OVID
Name: AARON RIDDLE
Name: JOSEPH JONATHAN COLEMAN
Name: TIMOTHY SMITH
Name: ROBERT RIDDLE
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