SEC Halts Alleged Beverly Hills Hedge Fund Fraud

Apr 30 2009 | 10:31am ET

The Securities and Exchange Commission has obtained a court order freezing the assets of a Beverly Hills, Calif.-based hedge fund, in which investors were coaxed into investing in two hedge funds that purportedly held more than $800 million in assets.

The SEC alleges that Bradley Ruderman raised at least $38 million from investors for his two hedge funds, Ruderman Capital Partners and Ruderman Capital Partners A. Through fake account statements, Ruderman assured investors that the hedge funds had earned positive returns as high as 60% per year in well-known securities such as Apple, Microsoft Corp., Qualcomm and Wal-Mart Stores.

The SEC alleges that Ruderman made at least one Ponzi scheme-like payment earlier this year when an investor requested a $750,000 withdrawal. Only after receiving two $500,000 deposits from new investors was Ruderman able to transfer funds out of the account to pay the earlier investor.

Ruderman also allegedly lied to at least one prospective investor by saying that Lowell Milken (chairman of the Milken Family Foundation and Michael Milken's younger brother) and Larry Ellison (CEO of Oracle Corp.) were investors in the hedge funds. The prospective investor went on to invest in one of the hedge funds under the false impression that Milken and Ellison were invested in them.

"As alleged in our complaint, Ruderman was willing to say or do anything to persuade investors to entrust their money to him, particularly when his scheme was unraveling," said Rosalind Tyson, director of the SEC's Los Angeles Regional Office. "Ruderman's fabricated account statements presented a rosy picture for investors who were cajoled into believing these hedge funds were well-capitalized and experiencing significant gains rather than major losses."

A federal court in California has granted the SEC’s request for emergency relief for investors, including an order temporarily enjoining Ruderman, his company Ruderman Capital Management, and the hedge funds from future violations of the antifraud provisions and freezing their assets. The SEC seeks preliminary and permanent injunctions, disgorgement, and financial penalties against the defendants.

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