Monday, 27 February 2017
Last updated 2 days ago
Oct 26 2010 | 3:20am ET
Federal prosecutors have asked a judge to throw the book at hedge fund fraudster James Nicholson for his $140 million Ponzi scheme.
In a sentencing memorandum in advance of his Friday sentencing, prosecutor David Leibowitz wrote that Nicholson should receive the maximum sentence of 45 years in prison. Unsurprisingly, the Westgate Capital Management founder's own representatives think that such a sentence for the 44-year-old would be "draconian," and have asked U.S. District Judge Richard Sullivan to impose a sentence "substantially below the guideline range" of 30 to 45 years.
"To be sure, Mr. Nicholson wrongly derived significant wealth from Westgate, with which he purchased real estate and certain extravagances," his lawyers, James Mitchell and Erik Zissu, wrote. But most of the losses—some $76 million—came from trading and not theft.
What's more, "there can be no question that Mr. Nicholson's incarceration will deal its harshest blow on his three young children," who range from 7 to 12 years of age.
Nonsense, argues prosecutor Leibowitz.
"Viewed in any reasonable context, Nicholson's fraudulent undertakings—involving literally hundreds and hundreds of lies issued over the course of nearly a decade, as well as the evidence of the defendant's apparently insatiable greed—place him far beyond the vast majority of white-collar defendants to face judgment before this or any other sentencing court," he wrote. Leibowitz cited Nicholson's recidivism—he was fired twice before founding his hedge fund for stealing customer funds—and "the sheer number and vulnerability of his victims" as reasons for locking him up and throwing away the key.
Nicholson pleaded guilty in December to running the Ponzi scheme, admitting that he began lying to investors as far back as 2004. But the meat of the scam didn’t come until the collapse of Lehman Brothers, which in turn precipitated the collapse of Nicholson’s seven hedge fund. In the wake of his losses on the Lehman bankruptcy, Nicholson lied to investors about his returns and how much the funds were managing: He claimed to run $900 million; he actually ran no more than $60 million.
Nicholson’s scam fell apart in December 2008, when $5 million in redemption checks bounced.