The Securities and Exchange Commission has obtained an emergency court order to halt a hedge fund investment scheme by a former Marine living in the Chicago area who has been masquerading as a successful trader to defraud fellow veterans, current military, and other investors.
The SEC alleges that Clayton A Cohn and his hedge fund management firm Market Action Advisors raised nearly USD1.8m from investors through a hedge fund he managed.
Cohn lied to investors about his success as a trader, the performance of the hedge fund, his use of investor proceeds, and his personal stake in the hedge fund.
Cohn only invested less than half of the money raised from investors and instead used more than USD400,000 for such personal expenses as a Hollywood mansion, luxury automobile, and extravagant tabs at high-end nightclubs. He used his lavish lifestyle to carefully contrive the image of a successful trader and investor, when in reality he lost nearly all of the money invested through the hedge fund.
In order to cover up his fraud and continue raising money from investors, Cohn generated phony hedge fund account statements showing annual returns exceeding 200 per cent.
“Cohn lured fellow military and other investors into his hedge fund by portraying himself as a successful trader who generated massive returns for his investors,” says Timothy L Warren, acting director of the Chicago regional office. “But Cohn’s hedge fund investors didn’t have a chance to make a profit since he never invested most of their money and promptly lost the portion he did invest.”
According to the SEC’s complaint filed in federal court in Chicago, Cohn targets mostly unsophisticated investors and has solicited friends, family members, and fellow veterans to invest in his hedge fund. Cohn controls a so-called charity called the Veterans Financial Education Network (VFEN) that purports to teach veterans how to understand and manage their money. Cohn has touted his Marine Corps pedigree in VFEN press releases and encourages veterans to find “a money-manager who is both trustworthy and knows what he is doing.” VFEN’s website identifies Cohn as a money manager who “manages millions of dollars.”
According to the SEC’s complaint, Cohn managed his hedge fund Market Action Capital Management through his investment advisory firm Market Action Advisors, which is registered with the state of Illinois. Cohn solicited investments by falsely claiming that he had major success as a personal trader and invested USD1.5m of his own money in the hedge fund. He also misrepresented that an accounting firm would audit the hedge fund’s financial statements.
The SEC alleges that Cohn had a record of trading losses, invested no more than USD4,000 of his own money, and absconded with far more money for his personal expenses. The audit firm named by Cohn never agreed to audit the fund’s financial statements. Cohn continued to deceive investors after their initial investment by issuing account statements that showed annual returns of more than 200 per cent for 2012 when the hedge fund actually lost money.
The SEC’s complaint charges Cohn and Market Action Advisors with violating the antifraud provisions of the federal securities laws. The court granted the SEC’s request for emergency relief including a temporary restraining order and asset freeze. The SEC further seeks permanent injunctions, disgorgement of ill-gotten gains, and financial penalties from Cohn and Market Action Advisors.