SEC obtains asset freeze against Massachusetts-based investment adviser
The Securities and Exchange Commission (SEC) has obtained an asset freeze against a Massachusetts-based investment adviser charged with stealing money from clients who were given the false impression they were investing in a hedge fund.
In a complaint unsealed today in federal court in Boston, the SEC alleges that Gregg D Caplitz and Insight Onsite Strategic Management in Wilmington, Massachusetts, raised at least USD1.1m from clients that was used for purposes other than investing in the hedge fund they purported to manage. Investor money was merely transferred to the firm’s chief investment officer and other members of her family who spent it on personal expenses. The firm reported in SEC filings that it has USD100m in assets under management, however the purported hedge fund actually has no assets.
US District Judge Mark L. Wolf granted the SEC’s request for an emergency court order to freeze the assets of Caplitz and his firm as well as others who received investor money and have been named as relief defendants for the purposes of recovering investor funds in their possession.
“Caplitz and his firm conjured up a hedge fund to lure longtime clients into investing substantial amounts of money that became nothing more than a slush fund to pay bills for others,” says Julie M Riewe, deputy chief of the SEC enforcement division’s asset management unit.
According to the SEC’s complaint, Caplitz’s scheme began around 2009. While soliciting funds, Caplitz convinced one client and his wife to invest USD275,000 in the hedge fund that Caplitz claimed would generate them about USD1,000 per month in returns. Caplitz also solicited a 20-year client who after considering his sales pitch decided not to invest in the hedge fund because she considered it too risky of an investment for someone her age. But Caplitz apparently took action to obtain funds from the client’s IRA account and wire thousands of dollars to an Insight Onsite Strategic Management bank account. The client was not aware of the transfers and did not authorise them.
The SEC alleges that instead of using investor funds to purchase shares in a hedge fund or to manage or develop a hedge fund, Caplitz transferred control of client money to Rosalind Herman, his friend who works at the firm. Investor funds also were transferred to her sons Brad and Brian Herman, daughter-in-law Charlene Herman, and a company called The Knew Finance Experts. The Hermans, who all live in Las Vegas, own that company. The Hermans used investor money to pay legal bills and other personal expenses at gas stations, drugstores, and restaurants.
The SEC alleges that as part of his scheme, Caplitz obtained funds from a real estate investment trust (REIT) by falsely representing that a hedge fund he operated was interested in making an investment in that trust. The public, non-traded REIT gave USD135,000 to Caplitz so he could conduct due diligence on the REIT as a precursor to making a USD5m investment that never materialised.
The SEC alleges that Caplitz and Insight Onsite Strategic Management violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, Section 17(a) of the Securities Act of 1933, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint seeks a permanent injunction plus disgorgement, prejudgment interest, and a penalty against Caplitz and his firm. The complaint also names the four Hermans and The Knew Finance Experts as relief defendants and seeks disgorgement plus prejudgment interest.
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