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Hedge Fund Manager Indicted on Fraud Charges

Date: Wednesday, April 29, 2009
Author: The New York Times

A Florida hedge fund manager, Arthur G. Nadel, was indicted Tuesday on 15 counts of securities, mail and wire fraud, accusing him of running a 10-year scheme to defraud investors of tens of millions of dollars.

Mr. Nadel, who ran Scoop Management in Sarasota, Fla., was on the run for nearly two weeks in January before the F.B.I. arrested him in Tampa on charges of fraud. A Sarasota County sheriff’s report at the time said Mr. Nadel told his wife in a note that he felt guilty about mismanaging people’s money and threatened to kill himself, although the sheriff’s office said he planned his disappearance.

A court-appointed receiver has identified more than $397 million that Mr. Nadel and his six hedge funds took in from investors, nearly $100 million more than the original estimate, according to newly filed court documents, The Sarasota Herald-Tribune reports.

The hedge funds were valued at less than $1 million when the Securities and Exchange Commission accused Mr. Nadel of fraud in January. Criminal charges were filed against Mr. Nadel in New York because he traded through a brokerage firm in the city.

“Nadel solicited prospective clients to invest in the funds by making various misrepresentations about the performance and value of the funds, including that the net asset value of each of the funds was tens of millions of dollars,” the United States Attorney’s Office for the Southern District of New York said.

“Nadel also claimed to investors that his purchases and sales of securities in the Funds had generated cumulatively more than $271 million in gains,” the United States Attorney’s Office said in a statement. “In truth, Nadel’s trading resulted in an overall net loss in the funds.”

From 1999 to 2009, more than 350 clients invested more than $360 million in the funds, the indictment states. During that period, Mr. Nadel received tens of millions of dollars in management fees.

Mr. Nadel is charged with six counts of securities fraud, one count of mail fraud and eight counts of wire fraud.

If found guilty of all the charges, Mr. Nadel would likely spend the rest of his life in prison. Each count carries a maximum sentence of 20 years imprisonment.

Mr. Nadel is being held in jail in New York because he was unable to meet the conditions for a $5 million bail. In January, the S.E.C. obtained a court order freezing his assets.

Mr. Nadel’s lawyer, Mark Gombiner, said his client would plead not guilty to each of the counts in the indictment when he appears in Federal District Court in Manhattan on Thursday.

“Mr. Nadel is a quite elderly man with very serious health concerns and I anticipate asking the court to reconsider his bail conditions,” Mr. Gombiner said, according to Reuters.