Another hedge fund manager who engaged in a Ponzi scheme is headed to the slammer. Arthur Nadel was sentenced to 14 years in prison for a scheme that cost investors about $162 million.
In addition, he was given three years of supervised release once his prison time is served. Of course, given that he is currently 77, he won’t exactly be a major flight risk once he gets out of prison.
Nadel was also ordered by U.S. District Judge John Koeltl in the Southern District of New York to forfeit $162 million, as well as his real estate in Florida, Georgia and North Carolina, five airplanes and one helicopter.
Nadel pled guilty in February 2010 to 15 counts of securities fraud, mail fraud and wire fraud. He also used some of the money to fund several businesses, including his wife’s flower shop and a North Carolina real estate project, according to the government. The case was brought in coordination with President Obama’s Financial Fraud Enforcement Task Force, an interagency group whose job it is to investigate and prosecute financial crimes.
It still amazes me that people would live a web of lies and risk freedom so they can own more real estate than they could use and fly from here to there by helicopter.
Nadel’s Ponzi scheme — perpetrated from 1999 through January 2009 — raised more than $330 million from approximately 390 investors in six different funds. According to Manhattan U.S. Attorney Preet Bharara, Nadel “cheated his elderly and unwitting victims out of their retirement savings and consigned others to poverty.”
According to the indictment, Nadel persuaded people to invest their savings with him by lying to them about his trading and inflating the value of his funds, claiming that his prowess had resulted in consistent, double-digit annual returns.
Of course, this is where I blame the victims. Sure, a number of hedge funds have claimed to rack up double-digit returns year in and year out, but investors should be a lot more suspicious. They should ask for audited results and more details. Sounds simple after the fact, but investors were risking their lifetime savings.
I actually blame Bernie Madoff’s victims less because Madoff was claiming more modest returns over the years.
In any case, the government says “Nadel created and got others to create false and fraudulent client account statements and other documents showing fictitious positive returns consistent with the double-digit returns he falsely claimed he achieved.”
For his efforts, Nadel made tens of millions of dollars in management and performance fees over the years. At least he no longer needs to worry whether Congress will raise the tax on carried interest.
