A New Jersey court has charged Robert J Sucarato, who claimed he was running a hedge fund business with USD7bn in assts under management and offices in New York and Chicago, with fraudulen
A New Jersey court has charged Robert J Sucarato, who claimed he was running a hedge fund business with USD7bn in assts under management and offices in New York and Chicago, with fraudulently soliciting money from investors and concealing trading losses by issuing false account statements.
The US District Court for the District of New Jersey has entered a statutory restraining order against Sucarato, who conducted business under the name New York Financial Company, freezing assets under his control, prohibiting the destruction of documents, and requiring Sucarato to account for assets.
The court’s order arises from a complaint by the Commodity Futures Trading Commission, accusing Sucarato of fraudulently soliciting at least USD1.5m from at least five individuals to participate in two commodity pools or ‘hedge funds’ and with concealing trading losses by issuing false account statements to participants.
The hedge funds, the NYFC Diversified Strategic Fund and NYFC Strategic Fund, were supposed to operate under the management of New York Financial Company and invest in a variety of instruments including commodity futures and options. The complaint also charges Sucarato with failing to register as a commodity pool operator and failing to comply with regulatory requirements in connection with his operation of the pools.
The CFTC alleges that going back at least to September 2004, Sucarato solicited individuals to invest in his hedge funds by claiming that he had managed the funds since 1993 with approximately some USD7bn in assets, that his funds routinely outperformed the market with a 10-year compounded return exceeding 1,800 per cent, and that New York Financial Company was a registered investment adviser and portfolio manager.
Sucarato allegedly used a forged audit report purportedly prepared by a major accounting firm to suggest that the company had a value of more than USD800m and sought to create the impression that it was a successful, well established capital management firm with offices in New York and Chicago and more than 20 experienced traders. However, the CFTC charges, the supposed New York and Chicago offices were in fact merely virtual offices.
‘The sophistication required to fabricate an established management firm with a winning earnings record and the financial statements to back it up will not go unchallenged by a robust enforcement programme,’ says CFTC director of enforcement Gregory Mocek. ‘Once again, our enforcement programme has exposed layers of deceit in the solicitation and management of a hedge fund.’
The complaint also alleges that after convincing individuals to invest in the commodity pools, Sucarato provided performance reports to participants suggesting that New York Financial Company was consistently highly profitable in trading commodity futures and options on their behalf.
In reality, however, Sucarato held commodity futures and options trading accounts in his name only and sustained net losses almost every month he traded. To the extent that Sucarato did not use pool participants’ funds to trade in his personal commodity futures and options accounts, the disposition of the participants’ funds is unknown.
From at least April 2007, pool participants whose performance reports indicated that their investments had increased in value demanded that Sucarato liquidate their accounts and return their funds, but the cheques issued by Sucarato to cover the redemption requests bounced.
The court will hear the CFTC’s request for a preliminary injunction on May 8. The regulator is also seeking a permanent injunction against Sucarato, disgorgement, restitution and civil monetary penalties.
