Investment and Hedge Fund Manager Charged for Perpetrating Multi-Million-Dollar Fraud Schemes

By | November 20, 2012

(Source: FBI) - Preet Bharara, the United States Attorney for the Southern District of New York, and Mary E. Galligan, the Acting Assistant Director in Charge of the New York Office of the Federal Bureau of Investigation (FBI), today announced the unsealing of an indictment charging Stephen Colangelo, Jr., with engaging in two separate schemes that defrauded investors out of more than $2.7 million. Colangelo’s first scheme involved a hedge fund he controlled called the Brickell Fund LLC (the “Brickell Fund”), and his second scheme involved three companies he created and controlled called “Hedge Community,” “Start A Hedge Fund,” and “Under the Radar SEO” (the “business ventures”). Colangelo misled investors in the course of both of these schemes by making numerous false statements and representations, which included issuing fraudulent performance statements, private placement memoranda, and other business documents. He was arrested at his home in Congers, New York this morning, and will be presented and arraigned in Manhattan federal court before U.S. Magistrate Judge Debra Freeman this afternoon.

Manhattan U.S. Attorney Preet Bharara stated, “As alleged, Stephen Colangelo held himself out to be an investment manager who lured in clients to funds that he used as vehicles for stealing millions of dollars of investor money. Alleged schemes like Colangelo’s are all too familiar, and we will continue to prosecute those who defraud their investors.”

New York FBI Acting Assistant Director in Charge Mary E. Galligan said, “Colangelo was arrested by FBI agents today for allegedly swindling investors not once, but in two different fraudulent schemes. He reaped an estimated 2.7 million dollars, which he used for personal expenses. These are investment schemes the FBI has seen all too often. We remain committed to investigating and apprehending those who seek to deceive investors.”

The following allegations are based on the Indictment unsealed today in Manhattan federal court:

From March 2009 to February 2011, Colangelo represented that he was an investment manager and solicited funds from private investors for the Brickell Fund, a purported hedge fund he operated. In the course of soliciting funds from investors, Colangelo made numerous false and fraudulent statements and representations. Specifically, he told potential investors that his compensation for managing their investments in the Brickell Fund would be a nominal management fee and a certain percentage of trading profits, thus ensuring his compensation would be dependent on his trading success. In reality, Colangelo regularly misappropriated large amounts of investor money for his own personal benefit and to support unrelated business ventures. He also regularly made claims to investors concerning investment strategy and alleged profits, which turned out to be entirely false. Based on these and other fraudulent statements and misrepresentations, Colangelo defrauded investors out of more than $1.6 million in connection with the Brickell Fund.

From August 2009 to October 2011, Colangelo solicited investments in the Business Ventures. In so doing, Colangelo represented that investment money would be used for legitimate business expenses, when, in reality, he misappropriated a large amount of the investments for his own personal benefit. Colangelo defrauded investors of well over $1.1 million in connection with the Business Ventures.

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Colangelo, 45, is charged with two counts of securities fraud and two counts of wire fraud. The securities fraud and wire fraud charges each carry a maximum term of 20 years in prison. U.S. District Judge Robert W. Sweet is assigned to this case.

Mr. Bharara praised the investigative work of the FBI and also thanked the SEC for its assistance.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Michael Levy and Steve Lee are in charge of the prosecution.

The charges contained in the Indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

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