Hedge Fund Manager Indicted In N.Y., N.J. In Brokerage Scam

Oct 28 2011 | 11:37am ET

A Florida hedge fund manager is in a whole heap of trouble over an alleged "free-riding" trading fraud.

Scott Kupersmith has been indicted twice over and, along with an alleged accomplice, sued by the Securities and Exchange Commission. According to federal prosecutors in New Jersey, where he used to live, and the Manhattan District Attorney's office, Kupersmith ripped off both his brokerages through the free-riding scam and his clients by lying to them.

In the former scam, run from 2008 through this year, Kupersmith allegedly bought $64 million worth stock with money they didn't actually have, covering the trades by buying the shares from a different brokerage, hoping to profit from short-term price changes—which he did, to the tune of $1.2 million. What's more, Kupersmith lied to the brokerages about his assets and his control of a $20 million New York hedge fund, as well as to investors, whom he promised big returns while actually running a Ponzi scheme and spending investor assets on himself.

"The illegal scheme he is accused of was little more than a confidence game using offshore banks, shell companies and fraud, and ultimately cost legitimate broker-dealers hundreds of thousands of dollars," Manhattan D.A. Cyrus Vance said.

Kupersmith faces charges of securities and wire fraud in the federal case and 18 felony counts in Manhattan. In addition, Kupersmith and Frederick Chelly were sued by the SEC, accused of engaging in "a classic 'heads I win, tails you lose' scheme to trade risk-free at the expense of broker-dealers," the SEC's New York chief, George Canellos, said.

Kupersmith is to appear today before a federal judge in West Palm Beach, Fla. If convicted, he faces up to 20 years in prison.


In Depth

Star Fund Managers Battered By Rocky Ride In Yields, Currencies

May 28 2015 | 6:05am ET

Some of the biggest names in the investment world have been whipsawed by the recent...

Lifestyle

Yale Receives $150 Million Gift from Blackstone’s Schwarzman

May 12 2015 | 12:10am ET

Yale University announced it has received a $150 million gift from Blackstone Group...

Guest Contributor

When Less is More: The Case for Concentrated Equity Strategies

Jun 1 2015 | 7:59am ET

The conventional wisdom is that wide diversification is the “holy grail,” as...

 

Sponsored Content

Editor's Note