Chief Executive Officer And President Of Investment Fund Sentenced In Manhattan Federal Court For Orchestrating $10 Million Fraud Scheme
Chief Executive Officer Also Sentenced In Connection With Separate $11 Million Dollar Ponzi Scheme With Pension Plan Funds
Preet Bharara, the United States Attorney for the Southern District of New York, announced that ABDUL WALJI and RENIERO FRANCISCO, the Chief Executive Officer and President, respectively, of Arista LLC (“Arista”), a California investment fund, were sentenced today in Manhattan federal court to 151 months and 97 months, respectively, in connection with a multimillion-dollar fraud scheme. WALJI and FRANCISCO defrauded 40 investors of approximately $10 million through a series of misrepresentations concerning the nature and performance of the investment fund, and issued fraudulent account statements to investors to cover up massive losses. WALJI also perpetrated a separate multimillion-dollar scheme involving pension plan funds that he managed through three California-based trusts: Allied Benefits, Inc., Allied Benefits Trust, and Stone Lamm Trust (collectively, the “Trusts”). Both defendants were charged in December 2012, and pled guilty on July 2, 2013 before U.S. District Judge Denise Cote, who also imposed today’s sentences.
Manhattan U.S. Attorney Preet Bharara said: “Abdul Walji and Reniero Francisco defrauded dozens of investors who put trust – and millions of dollars – in their hands. The crimes they committed have earned them more than two decades of collective prison time.”
According to the three-count Superseding Information to which WALJI pled guilty, the Indictment to which FRANCISCO pled guilty, the defendants’ plea agreements, other documents in the public record, and statements made during their guilty pleas:
The Arista Fraud Scheme
Arista began operations as an investment firm in February 2010, with its principal place of business in Newport Coast, California. In April 2011, Arista became a registered commodity pool operator with the United States Commodity Futures Trading Commission (“CFTC”), and a member of the National Futures Association.
In early 2010, WALJI and FRANCISCO began to solicit individuals to invest in Arista. From 2010 through 2011, the defendants carried out a fraudulent scheme through three main methods. First, WALJI and FRANCISCO misrepresented to several Arista investors the nature of the company’s investments and the returns that investors would receive from investing in Arista. For example, WALJI and FRANCISCO falsely told investors that their money would be invested in safe, risk-free securities, when in fact much of the money was invested in options and futures. Second, WALJI and FRANCISCO sent fraudulent account performance statements to Arista investors that misrepresented the value of their investments. In an effort to secure additional contributions, the defendants also concealed Arista’s trading losses, and told investors that they were profiting from their investments when they were actually losing money. Finally, WALJI and FRANCISCO misappropriated at least $2.7 million from Arista’s investors through fees to which they were not entitled, and which WALJI and FRANCISCO diverted for their own personal benefit. Based on their false representations, WALJI and FRANCISCO collected $10 million from 40 investors, and they ultimately misappropriated a large portion of the money.
Walji’s Pension Plan Fraudulent Scheme
From early 2008 through June 2013, WALJI also perpetrated a separate fraudulent scheme using pension plan funds that he administered. Similar to the scheme set forth above, WALJI executed his fraudulent scheme through three principal methods. First, WALJI made oral misrepresentations to existing and potential clients of the Trusts concerning: (i) the nature of the Trusts’ pension plan investments; (ii) the investment value and past performance of the pension plans; and (iii) the source of funds distributed to plan participants who had reached retirement and/or who had requested distributions. Second, WALJI distributed fraudulent statements to clients concerning the value of their accounts and the prior performance of their pension plans in order to forestall redemption requests, to induce new clients to contribute to the plans, and to induce existing clients to make additional contributions. As selected clients reached retirement age or requested disbursements, WALJI sent those clients money that he represented to be proceeds of their individual pensions, when in fact he knew that the purported disbursements were often funds contributed by other clients. Third, WALJI misappropriated approximately $300,000 of client funds for his personal use. In total, this scheme caused losses to approximately 40 additional victims in an aggregate amount of approximately $11.3 million.
In addition to their prison terms, Judge Cote sentenced WALJI to three years of supervised release, and FRANCISCO to three years of supervised release. WALJI was also ordered to forfeit $13.6 million and to pay over $21 million in restitution. FRANCISCO was ordered to forfeit $4.1 million. The defendants also agreed to forfeit the proceeds of several bank and trading accounts.
WALJI, 60, of San Juan Capistrano, California, pled guilty in July 2013 to one count of conspiracy to commit securities fraud and wire fraud, one count of commodities fraud, and one count of securities fraud. FRANCISCO, 57, of Newport Coast, California, pled guilty in July 2013 to one count of conspiracy to commit securities fraud and wire fraud and one count of securities fraud.
Mr. Bharara praised the investigative work of the Federal Bureau of Investigation and also thanked the CFTC for its assistance.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys David I. Miller and Christopher D. Frey are in charge of the prosecution. Assistant U.S. Attorney Paul Monteleoni is in charge of the forfeiture-related aspects of the case.