A California hedge fund executive has struck a plea deal with prosecutors in a fraud case that involves a bizarre shakedown attempt.

Kenneth Kenitzer was charged yesterday with mail fraud and money laundering. He is expected to plead guilty and is cooperating with investigators in the hope of winning a reduced sentence.

Kenitzer was vice president of Equity Investment Management and Trading, which authorities say was a Ponzi scheme that defrauded about 150 investors of $40 million. According to prosecutors, Kenitzer and others misappropriated client money and hid the losses from investors.

Kenitzer had previously been charged with fraud by the Securities and Exchange Commission. Equity Investment president Anthony Vassallo has also been criminally charged in the case.

According to prosecutors, Equity Investment promised investors 36% returns with next to no risk. At least initially, Vassallo 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 the hedge fund 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.”

Four others, including Vassallo’s former bodyguard, have been indicted for trying to shake down three “hedge fund operators” who had invested in the alleged Ponzi scheme. Authorities say the four dressed up as Federal Bureau of Investigation agents—complete with bulletproof vests, ear pieces, badges and handcuffs—for a meeting with the operators in Folsom, Calif. They ordered the trio to wire more than $375,000 to an entity called the Spirit Foundation. The money was never sent.