The Securities and Exchange Commission is suing New Jersey-based hedge fund HMC International and two of its principals for misrepresenting the fund's performance to investors.
The SEC began an investigation into the now-defunct firm in the fall after the pair could not return money to investors who wanted out.
Regulators have frozen HMC's assets and are accusing Robert Massimi and Bret Grebow of misappropriating $5.3 million of the firm's $12.9 million in assets under management.
The two, who in the past have made headlines for their lavish lifestyles, allegedly used investors' money to pay for such things as expensive cars and private planes.
The SEC is also charging Jaime Elliott, Massimi's wife, in the case because some of the money was diverted to her following the collapse of the fund.