Monday, March 7, 2011
The SEC today amended its complaint against Francisco Illarramendi, a Stamford, Conn.-based investment adviser, and his firm MK Capital Management LLC, to additionally charge them with engaging in a multi-year Ponzi scheme involving hundreds of millions of dollars. The SEC previously obtained an asset freeze against them in January, alleging that they had misappropriated at least $53 million in investor assets.
In a parallel action today, the U.S. Attorney’s Office of the District of Connecticut unsealed criminal charges against Illarramendi for the same misconduct as well as for obstruction of justice for deliberately misleading the SEC staff during its investigation.
The SEC alleges that Illarramendi and MK Capital Management – which is not registered with the SEC – have misappropriated investor assets and misused two hedge funds they manage for Ponzi-like activity in which they used new investor money to pay off earlier investors. During the SEC’s investigation in December 2010 and January 2011, Illarramendi attempted to hide the fact that his hedge funds were missing assets by providing the SEC staff with a false letter from an accountant in Venezuela that purported to verify the existence of approximately $275 million in assets held by one of the funds. Those assets do not exist.
Since the filing of the original complaint on Jan. 14, 2011, the U.S. District Court for the District of Connecticut entered an order on Jan. 28, 2011, freezing the assets of Illarramendi and his firm. On Feb. 3, 2011, the Court appointed a receiver in the case.