Friday, July 3, 2009

Calif. Hedge Fund Exec Ran $15M Ponzi Scheme, SEC Says

July 1, 2009

By MATTHEW C. MCNALLY, ESQ., Andrews Publications Staff Writer

A California hedge fund manager bilked investors of nearly $15 million in a Ponzi scheme involving purported options trading, the Securities and Exchange Commission alleges in San Diego federal court.

In a Ponzi scheme investors get bogus dividends drawn from money contributed by newer investors.

In a complaint filed in the U.S. District Court for the Southern District of California, the SEC alleges that Moises Pacheco, 41, of Chula Vista, and his hedge fund firms Advanced Money Management Inc. and Business Development & Consulting Co. raised the money from more than 200 investors over a 42-month period beginning in January 2005.

Pacheco allegedly told investors that he used a covered-call options trading strategy through five hedge funds: AP Premium Value Funds I through IV and Capital Partnership Group.

In a covered call an investor owns shares of stock and sells a corresponding amount of call options. The holder of the call option pays a premium for the right to buy the underlying shares at a set price on a specific date. The option is "covered" because the seller already owns the shares.

Pacheco claimed that the funds exclusively relied on this strategy to generate trading profits ranging from 30 percent to 48 percent per year, the suit says.

Instead he used investors' money to pay purported returns until the scheme collapsed.

The hedge funds generated trading profits of only $367,000 but paid investors about $10 million in purported returns, according to the SEC.

The agency says most of the investors live in the Chula Vista area and know Pacheco, one of his friends or family members, or another investor.

The defendants are accused of violating various federal securities laws.

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Securities and Exchange Commission v. Pacheco et al., No. 09-CV-1355, complaint filed (S.D. Cal. June 24, 2009).
Derivatives Litigation Reporter
Volume 15, Issue 17

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