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Univ. of Toledo College of Law

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Monday, April 27, 2009

SEC Obtains Emergency Relief Against Connecticut Hedge Fund

On April 27, 2009, the SEC filed an emergency action in the United States District Court for the Western District of Texas to halt an on-going multi-million dollar fraud involving investments in a Stamford, Connecticut-based hedge fund and its affiliates — Ponta Negra Fund I, LLC, Ponta Negra Offshore Fund I, Ltd., and Ponta Negra Group, LLC (the “Hedge Fund”). The Commission’s complaint alleges, among other things, that Defendant Francesco Rusciano, 27, of Stamford, Connecticut, in selling interests in the Hedge Fund, (i) forged documents, (ii) promised false returns, and (iii) misrepresented assets managed by the Hedge Fund. U.S. District Judge Sam Sparks granted a temporary restraining order, asset freeze, and other emergency relief against the Defendants.

The Commission’s complaint alleges that from at least as early as September 1, 2007 to the present, the Hedge Fund, acting through Rusciano, raised at least $31 million from at least 15 investors. According to the Commission’s complaint, on at least two occasions, Rusciano forged brokerage account statements for the Hedge Fund to make it appear that the Hedge Fund had millions of dollars more in assets than it actually had. Specifically, the Commission alleges that Rusciano provided a selling agent for the Hedge Fund a January 11, 2008 brokerage statement, reflecting an account balance for Ponta Negra Fund I of $42,967,338.90. According to the Commission’s complaint, the correct balance for that account as of January 11, 2008 was $2,967,338.90 — $40 million less than the amount represented by Rusciano. Similarly, the Commission alleges that, on August 5, 2008, Rusciano produced to another selling agent a brokerage account statement reflecting an “equity” balance for Ponta Negra Fund, LLC of more $64 million. According to the Commission’s complaint, Rusciano altered the August 1, 2008 account statement by, among other things, redacting the word “excess” in the “excess equity” field on the account statement to make it appear as though the Hedge Fund had in excess of $64 million in that account. In reality, the account had less than $7 million.

According to the Commission’s complaint, Rusciano also misrepresented the Hedge Fund’s monthly and yearly performance results. With regard to monthly returns, the Commission alleges that Rusciano falsely represented that the Hedge Fund had consistently achieved positive results for every month throughout 2007 and 2008. In fact, in the account that held most of its assets, the Hedge Fund lost money in 10 of the 24 months from March 2007 through March 2009. With regard to yearly results, the Commission alleges that Rusciano misrepresented that the Hedge Fund earned total annual returns of 42.99% for 2007, 24.85% for 2008, and 6.14% for the first two months of 2009. In reality, the account that held most of the Hedge Funds’ assets suffered substantial trading losses in 2007, had modest profits in 2008, and again sustained losses in 2009. Finally, the Commission alleges that, on April 21, 2009, Rusciano sent an email to a selling agent for the Hedge Fund, detailing the Hedge Fund’s assets under management. According to the e-mail, the Hedge Fund had $59 million in assets under management as of February 2009. According to the Commission’s complaint, the Hedge Fund had less than $10 million.

The complaint alleges that Defendants Ponta Negra Fund I, LLC, Ponta Negra Offshore Fund I, Ltd., Ponta Negra Group, LLC, and Francesco Rusciano violated the anti-fraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition to the emergency relief granted by the Court, the Commission seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil money penalties against the Defendants.

http://lawprofessors.typepad.com/securities/2009/04/sec-obtains-emergency-relief-against-connecticut-hedge-fund.html

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