Chairman Of Purported Hedge Fund Pleads Guilty In Manhattan Federal Court To Conspiring To Commit Securities And Wire Fraud
Joon H Kim, the Acting United States Attorney for the Southern District of New York, announced that NICHOLAS MITSAKOS pled guilty in Manhattan federal court today to conspiring to commit securities and wire fraud. MITSAKOS’s plea stems from his participation in a scheme to defraud investors through his operation of a purported hedge fund called Matrix Capital. MITSAKOS solicited investments in his fund by overstating its past performance and its assets under management, when, in fact, Matrix Capital had never actually purchased or held any securities during the vast majority of its existence. Moreover, once he actually received investments based on these false statements, MITSAKOS misappropriated significant amounts of the money to pay his own personal expenses.
MITSAKOS was arrested on August 11, 2016, and pled guilty today before the Honorable Denny Chin, who was sitting by designation as a United States District Judge.
Acting U.S. Attorney Joon H. Kim said: “As he admitted in pleading guilty today, Nicholas Mitsakos purported to operate a successful hedge fund, but in reality, it was a sham from the outset. He touted his track record when in fact he had no trading history whatsoever. In the course of his fraud, he took hundreds of thousands of dollars from a single investor, and spent it on personal expenses. Mitsakos now stands a convicted felon and awaits sentencing for his crime.”
According to the Complaint, the Indictment, and other statements made in open court:
In or about October 2013, MITSAKOS created a purported hedge fund called Matrix Capital (“Matrix”). Matrix purported to be a “long-short” fund that invested in undervalued securities and sold overvalued securities short with a long track record of success. In order to raise money for his fund, MITSAKOS and others sent marketing materials and newsletters to numerous potential investors. Certain of these materials claimed that Matrix had achieved returns exceeding major indices like the S&P 500, including, in one newsletter, purported gains of approximately 25% in 2012, 66% in 2013, 20% in 2014, and 49% between January and October of 2015. MITSAKOS also led potential investors to believe that these returns were based on actual securities trades by Matrix, and that Matrix had millions in assets under management (“AUM”).
MITSAKOS’s representations regarding Matrix’s performance and AUM were false. In fact, Matrix had no track record in actually purchasing and selling securities, and, indeed, had no meaningful assets until receiving funds from a victim in September 2015. Instead, the purported performance results provided to potential investors were premised on how a hypothetical portfolio would have performed had Matrix actually acquired certain securities. No such trading actually took place and Matrix never actually owned any of the securities in the hypothetical portfolio that MITSAKOS maintained. Even in regard to Matrix’s hypothetical investment portfolio, MITSAKOS retroactively manipulated the investments in that portfolio from time to time in order to improve dramatically its hypothetical performance.
Based in part on MITSAKOS’s misrepresentations, Matrix received approximately $2 million from an investor in September 2015. MITSAKOS, however, used only a portion of that amount – about $1.2 million – to actually buy and sell securities. Of the remaining amount, MITSAKOS spent hundreds of thousands of dollars on business expenses and personal expenses like car payments, credit cards, and rent. MITSAKOS’s trading of the $1.2 million that he did invest, moreover, resulted in significant losses.
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MITSAKOS, 57, pled guilty to one count of conspiring to commit securities and wire fraud. This charge carries a maximum term of five years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Kim praised the exceptional work of the Office’s criminal investigators, and thanked the Securities and Exchange Commission for its assistance.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorneys Robert Allen and Brendan Quigley are in charge of the prosecution.