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

Q&A: Filippo Pignatti Morano On The Ultimate Alternative Investment...Classic Cars

Jan 29 2015 | 12:37pm ET

In 2011, Filippo Pignatti Morano launched a fund to invest in classic cars. FINalternatives...

Lifestyle

Looking For A Hedge Fund Manager? Try Davos

Jan 28 2015 | 8:48am ET

Davos, Switzerland seems to have become the hedge fund capital of the world—at...

Guest Contributor

From Switzerland With Love: Some Hard Truths About Central Banks And Risk

Jan 23 2015 | 7:54am ET

In the wake of the Swiss National Bank uncoupling the country’s currency from...

 

Editor's Note