It is alleged that the investment adviser raised more than $74 million from at least two dozen investors since 2005, promising them their money would be invested in liquid assets. In reality, the investors' money was diverted to the adviser's brother-in-law’s beach resort project that was facing foreclosure. In return, the adviser received unsecured, illiquid promissory notes. The investor funds were also used to pay other investors and to make a down payment on a$3.35 million unit purchased at his brother-in-law’s real estate project. The SEC has charged the New York-based investment adviser with defrauding investors in five offshore funds and using some of their money to buy himself a multi-million dollar beach resort property on Long Island.
According to the information contained in the SEC's complaint, the adviser operated this fraud through his investment advisory firms Horizon Global Advisors Ltd. and Horizon Global Advisors LLC. He used the promissory notes to hide his misuse of investor funds and to overstate the amount of money diverted to the real estate project. For instance, in 2011, he received $14.5 million in promissory notes in exchange for only $3.3 million he provided to his brother-in-law. The inflated promissory notes allowed the adviser to overstate the amount of assets he was managing and inflate his management fees by 800 percent or more.
SEC Obtains Asset Freeze Against Long Island Investment Adviser Charged with Defrauding Investors