Co-Founder Of Investment Fund Charged In Manhattan Federal Court For Participating In Multi-Million Dollar Fraud Scheme
Jason Rhodes Charged with Lying to Investors and Misappropriating Investor Funds
Geoffrey S. Berman, the United States Attorney for the Southern District of New York, and William F. Sweeney, Jr., the Assistant Director-in-Charge of the New York Field Office of the Federal Bureau of Investigation (“FBI”), announced today that JASON RHODES was arrested this morning on conspiracy, securities fraud, wire fraud, and investment adviser fraud charges stemming from his participation in a scheme to defraud investors by lying to investors in his hedge fund (the “Hedge Fund”) and using investor funds for his own personal use and to make repayments to earlier investors in a Ponzi-like manner.
RHODES is expected to be presented today in Magistrate Court before the Honorable Gabriel W. Gorenstein.
U.S. Attorney Geoffrey S. Berman said: “As alleged, Rhodes participated in a scheme to solicit investors’ money by promising to use it for a stated purpose — to invest in securities — instead, he used it to line his own pockets. In typical Ponzi-like fashion, Rhodes allegedly kept his scheme operating by using investor funds to make payments to other investors who were demanding their money. Jason Rhodes now faces serious time in federal prison for his deceitful conduct.”
FBI Assistant Director-in-Charge William F. Sweeney, Jr. said: “Time and time again, we see Ponzi-like investment schemes fail and their perpetrators brought to justice. As we allege today, Jason Rhodes is just the latest example of someone who allowed greed to guide his actions as he defrauded investors of more than $19 million. The FBI will continue to aggressively investigate these cases as long as misguided individuals continue to foolishly pursue these fraudulent schemes.”
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According to the Complaint:
Beginning in at least November 2013 and through in or about December 2016, RHODES, together with his co-conspirators, solicited investments in the Hedge Fund by falsely representing to investors that their funds would be used for legitimate, specified, investment purposes, namely purchasing securities. In fact, RHODES failed to invest the investor monies as promised, but rather diverted investor funds to his own personal use and the personal use of his co-conspirators and to make repayments to other investors who were demanding their money. Through this scheme, RHODES and his co-conspirators defrauded approximately 25 investors out of a total of approximately $19.6 million.
Among other fraudulent acts, RHODES and a co-conspirator falsified an investor account statement using a computer software program to conceal the fact that most of the $4.2 million the investor had sent to the Hedge Fund had been misappropriated, including through transfers of the funds to, among other places, the personal bank accounts of RHODES and a co-conspirator, and to previous investors. After this investor discovered the fraudulent nature of the account statement, RHODES, working with others, obtained funds from yet another investor in order to make payments to this previous investor.
RHODES, 46, of Rowayton, Connecticut, was arrested this morning. RHODES is charged with one count of conspiracy to commit securities fraud and wire fraud, one count of securities fraud, one count of wire fraud, and one count of investment adviser fraud. The conspiracy count carries a maximum sentence of 5 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. The securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million or twice the gross gain or loss from the offense. The wire fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense. The investment adviser fraud count carries a maximum sentence of 5 years in prison and a maximum fine of $10,000. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
Mr. Berman praised the work of the FBI. He also thanked the Securities and Exchange Commission.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Elisha J. Kobre and Jared Lenow are in charge of the prosecution.
The allegations contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.