Fund manager used investors' money to pay $2M credit card bill, SEC says
An investment fund manager is accused of carrying out a $105 million fraud and using her investors’ money for personal expenses, paying back other investors and making her own unrelated investments.
To lure in investors, Brenda A. Smith, of Philadelphia, falsely claimed a company she controlled had a $2.5 billion bond issued by HSBC and that she had transferred $100 million into her securities trading fund, Broad Reach Capital, authorities said in a complaint filed in U.S. District Court in New Jersey this week.
Smith created monthly account statements showing high returns and tear sheets claiming a yearly return of more than 30 percent. She said the fund had never had a losing month. But it was all lies, the feds alleged in the complaint.
While Smith took in about $105 million from at least 40 investors, she was using the money for expenses like a $2 million American Express bill, according to the complaint. And the bogus monthly statements she cooked up went back a year before she even started the fund in early 2016.
Even as tens of millions of dollars poured into the fund, its assets steadily declined as “the vast majority” went to unrelated costs, authorities said.
One phony presentation described in the complaint claimed the fund had a 1.76 percent gain in February 2018, when its funds actually declined by more than 50 percent.
Now Smith is facing four charges of wire fraud and one charge of securities fraud. The Securities and Exchange Commission said it obtained an emergency asset freeze and is seeking disgorgement of ill-gotten gains, interest and civil penalties.
“An investment adviser serves in a position of trust, and has a fiduciary duty to speak truthfully to clients,” said G. Jeffrey Boujoukos, regional director of the SEC’s Philadelphia office. “We allege that Ms. Smith breached her clients’ trust by misleading investors with false claims of how she invested their money and how those investments performed.”
FINRA, the Financial Industry Regulatory Authority, barred Smith on July 2, authorities said.
If convicted, Smith faces up to 20 years in prison and a fine of $250,000 or twice the gross amount of gain from the offense, whichever is greater, for each of the four counts of alleged wire fraud. She also faces up to 20 years in prison and a $5 million fine if convicted on the count of securities fraud.