29-Year-Old Charged With Hedge Fund Fraud

Jun 5 2013 | 10:28am ET

Fredrick Scott earned accolades and celebrity face-time for his status as the self-proclaimed "youngest African-American hedge fund founder in history." He also allegedly earned himself at least $750,000 of his investors' money—because, according to prosecutors, the self-proclamation was all there was to Scott's claims.

Scott was arraigned yesterday on charges that he duped investors. Prosecutors said he claimed to manage $3.7 billion—at the tender age of 29—and displayed a Web site full of photos of himself with the rich and powerful. But apparently like much of what Scott says, there was no truth to it.

Rather than $3.7 billion, Scott's ACI Capital Group was actually overdrawn as of the end of April. Scott's personal bank account shows more than $700,000 "flowing in and out," according to prosecutors. But even faced with criminal charges, Scott seems to have some difficulty with facts, telling pretrial services that he earns $200,000 per year, but only takes home $50,000 of it, while writing on a financial affidavit that he makes $96,000 per year.

"Fredrick Douglas Scott wanted a place in history, but tried to secure that spot with stolen money rather than honest work," Loretta Lynch, the U.S. Attorney in Brooklyn, N.Y., said. He was ordered jailed without bail pending trial.

Indeed, according to prosecutors, Scott's scam was depressingly familiar: He allegedly spent investors' money on luxury goods. But things haven't been going so well, prosecutors say, noting that Scott was staying with a friend in South Orange, N.J., after being kicked out of his Manhattan townhouse.

Scott's alleged fraud didn't only take in investors. Scott spoke at the Rev. Al Sharpton's National Action Network Conference in March (luring at least one investor), and Ebony magazine named him one of the country's top young black entrepreneurs in 2010. And his schmoozing got him pictures with New York Knicks legend Patrick Ewing and Martin Gruenberg, the chairman of the Federal Deposit Insurance Corp.

To a degree, it seems to have taken him in as well: Scott was represented by a public defender and told the judge that he didn't understand why his lawyers, from the top firm of Wilkie Farr and Gallagher, where not present yesterday. The prosecutor told the judge that the firm told him it had no intention of representing Scott. And Scott allegedly told the Federal Bureau of Investigation that his wife's parents' "Italian diplomatic status" would be his "ace in the hole."

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Editor's Note

    Oct 21 2015 | 10:41am ET

    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…