Hedge Fund/Ponzi Scheme Shakedown Case Grows With Indictments

May 27 2009 | 11:00am ET

A federal grand jury has indicted three more people allegedly connected with a bizarre shakedown attempt stemming from a $40 million hedge fund fraud.

Craig Anderson, Cassandra Moore and Sean Smart were charged last week with impersonating federal agents, prosecutors said. Also indicted was Michael Sanders, the former bodyguard of the man accused of orchestrating the fraud. Sanders had previously been charged with conspiracy and attempted extortion.

According to prosecutors, Sanders, Anderson, Moore and Smartt tried to shake down three “hedge fund operators”—previously identified as businessmen who had invested in the alleged Ponzi scheme—in March. The four arrived at the meeting in Folsom, Calif., wearing bulletproof vests, ear pieces and badges, carrying handcuffs and claiming to be from the Federal Bureau of Investigation and the Securities and Exchange Commission. At least one of the “authorities” also carried a gun.

The trio was instructed by the alleged imposters to wire $378,300.16 to an entity identified as the Spirit Foundation, the indictment says. The money was never sent.

The alleged extortion attempt apparently stems from a hedge fund fraud prosecutors say was run by Anthony Vassallo of Folsom, who has not been charged in the shakedown attempt.

According to prosecutors, Vassallo’s Equity Investment Management and Trading promised investors 36% returns with next to no risk. At least initially, he invested the money, although the complaint alleges that he lied to investors about the risks he was taking and put the money into high-risk assets. Prosectors say he lost most of that money by September 2007, and at that point turned Equity Investment into a Ponzi scheme. And as that scheme began to unravel, acting U.S. Attorney Lawrence Brown in Sacramento, Calif., said “bizarre efforts were made to recover at least some of those funds.”

Sanders’ lawyer, W. Russell Fields, has proclaimed his client’s innocence. He said Sanders, who has been released on bail, was merely trying to help Vassallo’s victims, according to the Sacramento Bee.

Smartt has also been arrested and released, while Anderson and Moore have not yet been arrested. Vassallo was released on bail last month.


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