Ponzi scheme

SEC charges Atlanta-based adviser over Ponzi-like scheme involving private investment funds

Fri, 21/09/2012 - 12:03

The Securities and Exchange Commission has announced charges against a private fund manager and his Atlanta-based investment advisory firm for defrauding investors in a purported fund of funds and then trying to hide trading losses by creating new private funds to make money to pay back the original fund investors in Ponzi-like fashion.

The SEC is seeking an emergency court order to freeze the assets of Angelo A. Alleca and Summit Wealth Management and prevent further investor losses, which are estimated to be USD17m among approximately 200 clients.

“Alleca told Summit Wealth clients that he was investing their money in funds, but instead he was rolling the dice in the stock market without success,” says Bruce Karpati, chief of the SEC enforcement division’s asset management unit. “Rather than fess up about his trading losses, Alleca tried a cover up by creating new funds. Instead of winning back the money, he just compounded his fraud by suffering further losses.”

After receiving a tip, the SEC initiated an examination of Summit Wealth. As SEC examiners noticed something was amiss at the firm, they immediately coordinated with SEC enforcement attorneys to gather and assess evidence.

“SEC examiners and attorneys acted swiftly after receiving a tip about possible wrongdoing at the firm, and have mounted an aggressive effort to put a stop to Alleca’s fraud before more investors are harmed,” says William P. Hicks, associate director of the SEC’s Atlanta regional office.

According to the SEC’s complaint filed late yesterday in a federal court in Atlanta, Alleca and Summit Wealth Management offered and sold interests in Summit Fund, which they told their clients was operating as a fund of funds – meaning they were investing their money in other funds and investment products rather than directly in stocks and other securities. The fund of funds investment strategy is intended to diversify investor money and minimize exposure to risks. However, Alleca instead engaged in active securities trading with his clients’ money, and he incurred substantial losses. He concealed the Summit Fund trading losses from investors and provided them false account statements.

The SEC alleges that when it came time to meet redemption requests from Summit Fund investors, Alleca created at least two hedge funds to raise money from Summit Wealth clients – Private Credit Opportunities Fund LLC and Asset Class Diversification Fund LP. Alleca’s plan was to cover up the losses that he had incurred in Summit Fund by illegally transferring profits from the new funds in a Ponzi-like fashion in order to meet earlier redemption requests. However, Alleca’s plan backfired when those successive funds incurred further trading losses. Alleca continued to issue false account statements to investors in Summit Fund as well as the additional funds in order to hide the actual losses on their investments.

The SEC’s complaint charges Alleca, Summit Wealth Management, and the three funds with violations of the antifraud provisions of the federal securities laws.


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