Thursday, 29 January 2015
Last updated 2 hours ago
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.
Jan 23 2015 | 1:00pm ET
In our new section, FINtech Focus, we will profile one of these firms each week. While fintech is a broad category, we will be focusing on firms that specifically cater to the alternative investment industry. Read more…