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."


In Depth

'Smart Beta' Funds In Regulators' Sights, Hedgies May Be Next

Mar 26 2015 | 11:11am ET

Funds that mimic strategies used by active managers for a fraction of the cost could...

Lifestyle

Study: Both Marriage and Divorce Lead to Negative Hedge Fund Performance

Mar 25 2015 | 6:51pm ET

Trouble at home leads to trouble in the market for fund managers, according to researchers...

Guest Contributor

Concerned About Your HFT Exposure? Hedge It!

Mar 26 2015 | 1:06pm ET

High-frequency trading has been a persistent storyline for several years. The trading...

 

Sponsored Content

    Mar 9 2015 | 6:35am ET

    Kelly RodriquesKelly RodriquesAs more investors look to diversify, many are beginning to use retirement funds to invest in alternative assets such as private equity and real estate. Kelly Rodriques, CEO & President of PENSCO Trust Company, explains how companies can connect with those looking to use their retirement accounts in a different way. Read more…

Editor's Note