Hedge Fund Denies Early Knowledge Of Westgate Ponzi Scheme

Apr 23 2010 | 12:04pm ET

A New Jersey hedge fund has denied that it uncovered a Ponzi scheme three years before it collapse—and did nothing about it.

Mountain Capital Management and its founder were sued last month by the receiver for Westgate Capital Management, whose founder, James Nicholson, pleaded guilty to running a $133 million fraud last year. According to Nicholson, who will be sentenced a week from today, Mountain Capital’s Neil Monteleone “learned of the Westgate fraud sometime in early 2006.”

Nicholson told receiver Lee Richards that Monteleone used that information to extract better terms from Westgate, threatening to “go to the SEC” if Mountain Capital did not get its money back, plus the fictitious profits.

Despite its alleged knowledge of the fraud, Mountain Capital invested another $1 million with Westgate—but in a managed account.

“Defendants sought these protections because of their knowledge of Nicholson’s fraudulent scheme,” the lawsuit alleges.

Mountain Capital and Monteleone deny the allegations.

“In contrast to Nicholson’s paraphrased testimony, of a convicted felon, Mr. Monteleone denies that he had any knowledge that Mr. Nicholson was operating a Ponzi scheme,” their lawyer, Anthony Paccione, said. “Why would he have invested a second time? He was defrauded by Nicholson, like everyone else.”

Richards is seeking $25.6 million from Mountain Capital and the Monteleones, including $13.4 million in bogus profits.


In Depth

Q&A: George Schultze On His Fund's Unique Approach to Distressed Investing

Apr 16 2015 | 1:01am ET

George Schultze is a managing member of Schultze Asset Management, a long/short...

Lifestyle

Puerto Rico Woos The Rich But So Far Gains Little

Apr 17 2015 | 2:45am ET

Hedge fund manager Rob Rill grins. He has just had word that U.S. financial regulators...

Guest Contributor

Minnesota Supreme Court Rejects The Ponzi Scheme Presumption: Lenders Claw Back Some Of Their Own Rights

Apr 17 2015 | 9:23am ET

A recent court ruling in Minnesota has put an end to the Ponzi Scheme Presumption...

 

Editor's Note