Hedge Fund Fraudsters Get Three Years

Sep 20 2012 | 10:33am ET

Two hedge funds partners-in-crime will do the same time for their roles in a million-dollar fraud.

Christopher Fardella and Michael Katz were each sentenced to three years in prison yesterday. The duo, half of the partnership at Florida-based KMFG International, had pleaded guilty to securities fraud, mail fraud and conspiracy last year.

According to prosecutors, the two men lied to investors about their own backgrounds and about KMFG's performance, using cold calls to generate some $1.03 million in investments. But almost all of the money was lost or spent by the co-conspirators, on deluxe trips to Las Vegas, among other things.

Fardella and Katz told investors that their fund was run by a team with proven success, one that featured veteran executives of the oil and gas industry, and that one of the team members had earned "cumulative returns for 30 months of over 165%." None of it was true. A third co-defendant, Kristian Murphy-Fuhse, pleaded guilty to the scheme in January and is awaiting sentencing.

"Their sentences demonstrate to those who may consider similar schemes that smoke and mirrors will not fool law enforcement, and you will be held accountable for such fraudulent activity," Manhattan U.S. Attorney Preet Bharara said.

In addition to jailtime, Fardella and Katz were ordered to pay $981,000 in restitution.

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