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Press Release

Head Of Investment Management Firm Pleads Guilty In Connection With $18 Million Pre-IPO Securities Fraud Scheme

For Immediate Release
U.S. Attorney's Office, Southern District of New York
Fred Elm, Who Fled to Canada in 2017 Prior to His Original Plea Date, Was Extradited Back to the U.S. Earlier This Year

Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced today that FRED ELM, a/k/a “Frederic Elmaleh,” the founder and manager of Elm Tree Investment Advisors LLC (“ETIA”), pled guilty before U.S. District Judge Edgardo Ramos to securities fraud charges stemming from his role in a scheme to defraud investors in multiple investment funds created and controlled by ELM and Ahmad Naqvi, ETIA’s chief operating officer.  Among other illicit activity, ELM and Naqvi fraudulently induced more than 50 investors to invest over $18 million based on the false representation that ELM and Naqvi would invest that money, through the funds, in the shares of privately held technology companies, like Twitter, Alibaba, Uber, and Square, before their initial public offerings (“IPOs”).  Naqvi pled guilty to his role in the scheme before Judge Ramos on May 4, 2020.   

U.S. Attorney Geoffrey S. Berman said:  “Fred Elm, founder and head of Elm Tree Investment Advisors, admitted today to defrauding investors out of more than $18 million by promising big returns from investments in hot tech companies, like Twitter and Uber, before their initial public offerings. In reality, Elm and his co-defendant Ahmed Naqvi lied about their access to pre-IPO investments, and they invested only a portion of the funds in money-losing trades and spent the rest on their own extravagant lifestyles, including a Bentley, a Maserati, and a Range Rover. After fleeing to Canada, Elm has now been brought to justice. He faces serious prison time for his high-flying scheme, which never earned a profit and left his investors high and dry. ”

According to the Superseding Indictment charging ELM and Naqvi, and other filings in the case:

From at least June 2013 through December 2014, ELM and Naqvi engaged in a scheme to defraud investors in funds that ELM and Naqvi created and controlled at ETIA, where ELM was the founder and manager, and Naqvi was the chief operating officer.  ELM and Naqvi raised more than $18 million from over 50 investors in four limited partnerships for which ETIA acted as the fund manager:  Elm Tree Investment Fund, LP; Elm Tree Emerging Growth Fund, LP; Elm Tree ‘e’Conomy Fund, LP; and Elm Tree Motion Opportunity, LP (collectively the “Elm Tree Funds”). 

ELM and Naqvi falsely represented that the Elm Tree Funds used investor capital to purchase shares in privately held technology companies before their IPOs.  These companies included Twitter, Inc., Alibaba Group Holding Limited, Uber Technologies, Inc., Square, Inc., Pinterest, Inc., and GoDaddy Group, Inc.  Moreover, ELM and Naqvi falsely represented that they had access to these pre-IPO shares because of their relationships with leading venture capital firms, such as Kleiner Perkins Caufield & Byers, Benchmark Capital, and Silver Lake Management, L.L.C.  In truth and in fact, ELM and Naqvi did not invest in the pre-IPO shares of these companies and did not have relationships with these venture capital firms.

ELM and Naqvi comingled the approximately $18 million that was invested in the Elm Tree Funds in a single investment account and then invested only a portion of the money, approximately $7.1 million.  At no point did any of the Elm Tree Funds return a profit.  Instead, for example, between January 2014 and November 2014, the Elm Tree Funds lost approximately $3.9 million in trading.

Moreover, of the investor funds that ELM and Naqvi did not lose in securities trading, ELM routinely converted investor funds to his own use in the form of cash withdrawals and to pay personal expenses, including to purchase a multimillion-dollar home, high-end furnishings, and other personal items, such as jewelry, daily living expenses, and luxury automobiles, including a Bentley, a Maserati, and a Range Rover.

The conversion of investors’ funds was contrary to the representations that ELM and Naqvi made to investors concerning their and ETIA’s fees.  ELM and Naqvi falsely represented that they and ETIA would take a two percent annual management fee plus a performance fee of 20 percent of any profits that the Elm Tree Funds earned.  In truth and in fact, ELM converted investor money that far exceeded the two percent management fee.  Moreover, because the Elm Tree Funds never returned a profit, ELM, Naqvi, and ETIA were not entitled to a percentage of any profits.

ELM and Naqvi also used approximately $5.2 million of new investor funds to make payments to earlier investors in a Ponzi-like fashion.  To prevent or forestall redemptions, and continue to raise money to fund their scheme, ELM and Naqvi also generated fictitious account statements and made oral and written misrepresentations that their trading strategies were generating consistently positive returns. 

For example, beginning in mid-2013, ELM and Naqvi began to solicit Victim-1 to invest with ETIA in the Elm Tree Funds.  On June 11, 2013, Naqvi sent Victim-1 a series of emails regarding the Elm Tree Emerging Growth Fund, in which he falsely represented, among other things, that the fund would invest in pre-IPO Twitter shares, and that ELM, Naqvi, and ETIA had “key contacts” with venture capital firms like Kleiner Perkins Caufield & Byers and Benchmark Capital.  ELM and Naqvi subsequently had in-person meetings and telephone calls with Victim-1 about this investment.  On October 9, 2013, Victim-1 invested approximately $52,500 in the Elm Tree Emerging Growth Fund.  Following Twitter’s IPO on November 6, 2013, Twitter’s stock price rose, and Naqvi subsequently told Victim-1 that ELM, Naqvi, and ETIA had used an options strategy to lock in Victim-1’s profits in Twitter.  Because the fund had not invested in pre-IPO Twitter shares, there were no profits to lock in.  Thereafter, ELM and Naqvi sent fraudulent account statements to Victim-1, including one sent on March 7, 2014.  The statement falsely indicated that Victim-1’s investment in the fund was valued at $274,550 (up from $52,500), and that the Elm Tree Emerging Growth Fund was valued at $68,115,855. 

ELM and Naqvi made similar misrepresentations with respect to Victim-1’s subsequent investments in the Elm Tree ‘e’Conomy Fund and Elm Tree Motion Opportunity, falsely indicating that those funds invested in Alibaba, Uber, Square, Pinterest, and GoDaddy, and that Victim-1’s investments were growing.  ELM and Naqvi also falsely represented that the value of the Elm Tree ‘e’Conomy Fund as of December 12, 2014, was $125,484,750 and that the value of Elm Tree Motion Opportunity as of December 18, 2014, was $77,286,220 – falsely claiming that the total value of the Elm Tree Funds was more than $270 million.

ELM was initially arrested in April 2016 and released on bail.  In June 2017, approximately one week before his then-scheduled guilty plea, ELM fled to Canada.  ELM was subsequently arrested in Canada and extradited to the United States in January 2020.  Naqvi, who had been a fugitive since his indictment in 2016, was arrested in Canada and extradited to the United States in November 2019. 

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ELM, 51, pled guilty to one count of securities fraud conspiracy and one count of securities fraud, which carry a maximum sentence of five years and twenty years in prison, respectively.  The charges also carry a maximum fine of $5,000,000, or twice the gross gain or loss from the offenses.  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.  ELM also agreed to forfeit $8,318,840.07.  ELM is scheduled to be sentenced by Judge Ramos on August 7, 2020, at 11:00 a.m.

Mr. Berman praised the work of Homeland Security Investigations and the U.S. Department of Justice’s Office of International Affairs, and thanked the U.S. Securities and Exchange Commission for its assistance.  Mr. Berman also thanked Canadian law enforcement for its support and assistance.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorney Joshua A. Naftalis is in charge of the prosecution.


Jim Margolin, Nicholas Biase
(212) 637-2600

Updated May 15, 2020

Securities, Commodities, & Investment Fraud
Press Release Number: 20-109