South Carolina Investment Fund Manager Admits $20 Million Securities Fraud Scheme
NEWARK, N.J. – A South Carolina investment fund manager today admitted his role in a scheme to fraudulently obtain over $20 million from investors through misrepresentations about trading strategy and fund performance, Acting U.S. Attorney Rachael A. Honig announced.
George Heckler, 64, of Charleston, South Carolina, pleaded guilty by videoconference before U.S. District Judge Madeline Cox Arleo to an information charging him with one count of securities fraud.
According to documents filed in this case and statements made in court:
Heckler managed, controlled or was involved with multiple investment funds, including Conestoga Partner Holdings (Conestoga), Cassatt Short Term Trading Fund LP (Cassatt), CV Special Opportunity Fund LP (CVSO), and TA1 LLC (TA1).
From 2014 to 2018, Heckler misrepresented to investors that he would invest their funds in particular trading strategies. Instead, he diverted their funds out of Cassatt and TA1 for purposes inconsistent with the trading strategies, including to pay out millions of dollars to other investors. Heckler also used investors’ funds to cover investment losses suffered by other funds under his management and/or control.
Heckler solicited investments from Victim-1, claiming the investments would be invested in Cassatt, which employed a “first loss” trading strategy intended to protect investors from losses. However, as of December 2013, Cassatt no longer had a brokerage account that was necessary to employ the represented trading strategy. Despite Cassatt no longer having a brokerage account, in 2014, Heckler represented to Victim-1 that Cassatt was still engaged in a first loss trading strategy and solicited Victim-1’s investment in Cassatt. In September 2014, Victim-1 invested approximately $9.1 million in Cassatt, relying on Heckler’s representation that Victim-1’s money would be invested consistent with Cassatt’s first loss trading strategy. Heckler used $4.6 million of Victim-1’s investment to repay existing investors and the remainder to satisfy other obligations Heckler owed that were unrelated to Cassatt.
Heckler also approached Victim-2 about the possibility of creating a hedge fund that would deploy capital to first-loss traders, who would serve as the “first loss” protection for investors’ capital. In late 2015, Victim-2 formed a hedge fund, utilizing the concept proposed by Heckler (Entity-1). In 2015 and 2016, Entity-1 invested $10.1 million in TA1 via a participation agreement that provided that Entity-1’s investment would be used for an “options arbitrage dividend recapture trade,” otherwise known as the “skate trade.” In fact, none of Entity-1’s investment was used for the “skate trade.” Entity-1’s investment was used for other purposes, including repaying others who had previously invested with Heckler.
Over the course of the scheme, Heckler sent out statements to investors that misled them into believing the value of their investments was increasing, when, in fact, the value was declining. Heckler took approximately $1 million in fees and distributions from the fraudulently obtained investments for his personal use.
The securities fraud count carries a maximum penalty of 20 years in prison and a $5 million fine. Sentencing is scheduled for July 15, 2021.
The U.S. Securities and Exchange Commission has filed a civil complaint against Heckler based on the allegations underlying the securities fraud charge.
Acting U.S. Attorney Honig credited special agents of the FBI, under the direction of Special Agent in Charge Michael J. Driscoll, Philadelphia Field Office, with the investigation leading to the charge.
The government is represented by Assistant U.S. Attorneys Catherine R. Murphy and Andrew Macurdy of the U.S. Attorney’s Office Criminal Division.