The Securities and Exchange Commission yesterday accused the founders of the commodity hedge fund Juno Mother Earth Asset Management with theft of about $2 million and lying about the amount of assets under management.
The two founders, Arturo Rodriquez and Eugenio Verzili, were slapped with a lawsuit alleging fraud. They lied about how much was invested in the fund and how much they had contributed to the fund.
"Verzili, Rodriguez and their firm violated the most fundamental duties of an investment adviser by lying to their clients and misappropriating the money entrusted to their care," George Canellos, chief of the SEC's New York office, announced. "They compounded their wrongdoing by providing false information in filings with the SEC that are designed to ensure that registered investment advisers make full disclosure to investors."
Their scheme was to issue nine phony promissory notes to hide the $1.8 million they stole from the fund. The skimmed money was used by the two founders to pay for travel, entertainment, meals, and operating costs. They also inflated the amount under investment to $200 million from the actual figure of $17 million. They lied by telling investors they had $3 million invested in Juno when in fact they had invested nothing. The SEC’s Bruce Karpati explained:
"Hedge fund investors derive comfort from knowing the fund's adviser has so-called 'skin in the game' by investing its own money side-by-side with investors and sharing the same risk and rewards. These managers deliberately distorted their skin in the game."
The SEC’s complains that the founders directed 41 distinct transfers of cash from the fund into Juno’s bank account. They hid their scheme from the independent directors of the fund.
The SEC wants a permanent injunction, fines, interest and restitution from Verzilli, who lives in Miami Beach, and Rodriquez, who is thought to reside in Costa Rica. The SEC acknowledged the assistance of the Cayman Islands Monetary Authority and the Financial Market Authority of Liechtenstein in cracking the case.
