SEC Accuses Race Car Aficionado of Bilking Investors out of $38 Million to Fund Lavish Lifestyle

Recent action brought by the U.S. Securities and Exchange Commission (SEC) against a Miami-based hedge fund manager offers another cautionary tale about the need for investors to perform a high level of due diligence when dealing with private placement memorandums (PPMs) and the sale of limited partnerships.


On April 21, 2021, the SEC charged a Miami-based hedge fund manager and his investment advisory firm with making misrepresentations regarding the strategy and investments of a private fund, failing to eliminate or disclose conflicts of interest, falsely representing the fund would be audited annually, and making false claims that exaggerated fund performance. You can find the SEC Press Release here, and the full SEC complaint here.

The SEC’s complaint alleges that the fund manager told investors the fund would maintain a highly liquid portfolio focused on options and the trading of preferred stock when, in reality, he was diverting assets to an entity he owned and investing the fund’s remaining assets in highly illiquid private companies and real estate ventures.


A Private Airplane Hangar for Race Cars

 In 2016, The Wall Street Journal interviewed the hedge fund manager whose affinity for race cars had prompted his purchase of the No. 28 Ford Galaxie that Fred Lorenzen drove to win the 1965 Daytona 500 and the Camry model that was Toyota’s first NASCAR-winning entrant, among others. What the defendant left unsaid, however, was his alleged diversion the previous year of $565,000 in fund assets to purchase a private plane hangar in Florida for his collection of race cars.

In another alleged fraudulent misappropriation of fund assets, the SEC’s complaint said the defendant sent $289,000 in 11 different wire transfers directly to the bank account of his former girlfriend and falsely recorded the transactions as an investment in a non-existent company owned by the former girlfriend engaged in the business of delivering luxury pet gift baskets.

While falsely marketing the fund between 2014 and 2019, the defendant allegedly raised more than $38 million from 90 investors who wanted and believed they were investing in a highly liquid investment fund. Among the defrauded investors was a family trust that placed $23.5 million in the fund which filed for bankruptcy in September 2019 holding only four liquid securities that were sold for $175,000. The defendant allegedly caused $26.6 million in fund assets to be deposited in a separate company that had no relation to the fund, thereby creating a fraudulent conflict of interest.

The defendant’s alleged fraudulent actions continued for five years, despite his misrepresentation that the fund would be audited by an independent accounting firm within 90 days of the end of each fiscal year. By failing to have the fund audited, the SEC’s complaint said the defendant further concealed the misconduct of shifting the fund’s investment strategy and the misappropriation of fund assets. The failure to have the fund audited eliminated a check on inflating the value of fund assets in reports to investors and, in turn, taking fees to which fund management was not entitled.


Safeguards for Investors

Two facts often escape those who chose to invest in a limited partnership. First, the audited financials will serve as a red flag and must be checked to see that what was promised to investors is actually happening. Accurate audited financials will always be the kryptonite for the scammer.

Second, investors should review the subscription agreement or the PPM to learn whether they have the ability to inspect the books and records either by themselves or with a representative. An investor in a limited partnership may be on the other side of the country, but they can have somebody actually go into the partnership’s office to review the books and records in person. If pushing for that as your right as a limited partner doesn’t pass the smell test, you should reconsider your investment in that limited partnership.


Protecting Your Rights

 When it comes to investing in a limited partnership, some lack familiarity with the necessary steps needed for due diligence. There can also be a little of the risk versus reward mentality at work where investors consider it Vegas money and decide to put the chips on the table and see what happens. However, whether it’s Vegas or limited partnerships, you should know the rules and your rights.

Core Compliance & Legal Services has worked with investors in limited partnerships to make certain the necessary level of due diligence is not the equivalent of a roll of the dice. Contact us at 619.278.0020 or visit us online at to schedule a consultation.




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