Hedge Fund Fraud Victims To Get First Restitution Checks

Sep 19 2011 | 4:38am ET

Two-and-a-half years after the arrest of hedge fund fraudster James Nicholson, victims of his $140 million scam have yet to see a penny returned.

That isn’t to say that the government and court-appointed receiver haven’t recovered a penny—they’ve collected lots of them, $20 million worth. It’s just that they haven’t started returning any of it.

That could change soon: Investors in Nicholson’s Westgate Capital Management could get their first checks next month, drawn from the $7 million recovered by the U.S. Marshals Service and recently turned over to the courts. The remaining $13 million, recovered by the receiver, has not yet been freed up, the Bergen (N.J.) Record reports.

“We are committed to ensuring that all the victims of James Nicholson’s fraud receive the restitution to which they are entitled,” Ellen Davis, a spokeswoman for the U.S. Attorney’s Office in Manhattan, said. “This is an ongoing process that we will see through to its conclusion.”

Nicholson pleaded guilty to running a Ponzi scheme in December 2009 and was sentenced to 40 years in prison the following November. He admitted 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 funds. 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.


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