Published on February 02, 2018 at 01:09PM
The Securities and Exchange Commission today charged a purported hedge fund manager in New York City with a brazen offering and investment adviser fraud thereby putting an end to an ongoing scheme.
The SEC alleges that, since at least 2014, Nicholas Joseph Genovese and his hedge fund Willow Creek Investments LP raised more than $5.3 million from at least six investors by affirmatively misrepresenting his prior money-management, securities industry experience, and size of operations. In particular, the SEC charged that Genovese: falsely stated that he managed $4 billion of the Genovese Drug Store family’s assets; falsely stated that his hedge fund’s investment adviser had $30-39 billion of assets under management, when, in reality, it appears to have had less than $10 million in assets under management; falsely stated that his advisory firm had between 42 and 60 employees, when, in reality, it had less than 10 employees; and falsely stated that his hedge fund had investment gains of 30-40 percent per year, when, in reality, it sustained losses. In addition, in furtherance of his scheme, Genovese lied about his education and prior work experience, and concealed his criminal past from investors.
The SEC also alleges that Genovese and his advisory firm Willow Creek Advisors LLC misappropriated investor funds to fund securities trading in Genovese’s personal brokerage account, which sustained over $8 million of trading losses between 2015 and 2017, and Genovese’s lifestyle by paying approximately $263,000 for, among other things, ATM cash withdrawals, food, hotel and transportation charges, including being chauffeured in a Bentley.
“As alleged in our complaint, Nicholas Genovese represented himself as a successful hedge fund manager with a sterling pedigree and track record. In truth, he was a recidivist convicted felon who lost or outright stole most of the money that investors entrusted to him,” said Marc P. Berger, Director of the SEC’s New York Regional Office. “In this case, we quickly sought emergency relief to stop Genovese’s ongoing fraud and to prevent the further dissipation of investors’ remaining funds.”
According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Genovese’s fraud appears to be ongoing as evidenced by recent money coming into his account as well as a recent refusal of an investor’s redemption request.
The SEC’s complaint charges Genovese and his hedge fund with violating Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and charges Genovese and his advisory firm with violations of Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. The SEC is seeking a temporary restraining order to freeze their assets and prohibit them from committing further violations of the federal securities laws. The SEC seeks a final judgment ordering them to disgorge their ill-gotten gains plus prejudgment interest, and for Genovese and his investment advisory firm to pay financial penalties.
The U.S. Attorney’s Office for the Southern District of New York has filed parallel criminal charges against Genovese.
The SEC’s investigation, which is continuing, is being conducted by Gerald Gross, Alexander Vasilescu, James Hanson, Karen Lee, and Adam Nowicki of the New York Regional Office. The litigation will be led by Mr. Vasilescu, Mr. Hanson and Ms. Lee. The case is being supervised by Sanjay Wadhwa. The SEC examination that led to the investigation was conducted by Steven Vitulano, Terrence P. Bohan, Edward Janowsky, and Javen Zhong. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation.