ThinkStrategy Capital Management LLC’s Chetan Kapur was accused by the U.S. of deceiving investors into buying shares in his hedge funds in a scheme that lasted from 2002 to 2010.
Kapur, ThinkStrategy’s sole managing director, was charged with securities fraud, investment adviser fraud and wire fraud in an indictment unsealed today by prosecutors in the office of Manhattan U.S. Attorney Preet Bharara.
Kapur “deceived investors into purchasing shares in the ThinkStrategy Capital Fund and ThinkStrategy Multi-Strategy Fund through false and misleading statements and omissions,” prosecutors alleged.
In November, the U.S. Securities and Exchange Commission and Kapur agreed to settle claims that ThinkStrategy deceived investors about its track record of positive returns. The SEC said ThinkStrategy invested with fraudulent funds including Arthur Nadel’s Valhalla and Victory funds and Samuel Israel’s Bayou Superfund.
Nadel, who pleaded guilty in 2010 to defrauding investors of $168 million, died in April while serving a 14-year prison sentence. Prosecutors alleged he operated a Ponzi scheme for 10 years beginning in 1999, covering withdrawals with money from new investors.
Investors were told the funds’ accounts had more than $360 million, although less than $125,000 was available when the scheme collapsed, according to prosecutors. Nadel took in $63.9 million in fees and trading profits, including $45 million from 2005 to 2007, the U.S. said.
Israel, Bayou’s co-founder, is serving a 22-year prison term. He pleaded guilty in 2005 after admitting he hid hundreds of millions of dollars in losses from a Ponzi scheme at Stamford, Connecticut-based Bayou.
Today’s indictment offers no details of Kapur’s alleged crimes and doesn’t mention Israel, Nadel or their funds by name.
Kapur made an initial court appearance before U.S. Magistrate Judge Frank Maas, who ordered him detained. Kapur was arrested yesterday as his flight arrived at John F. Kennedy International Airport in New York, Assistant U.S. Attorney Bonnie Jonas said.
Kapur faces a statutory maximum of 125 years in prison if convicted of all seven counts, Bharara’s office said. Kapur was scheduled to be arraigned before U.S. District Judge John Keenan on July 25.
Barry Zone, Kapur’s lawyer, didn’t immediately return a voice-mail message left at his office seeking comment about his client.
Kapur and ThinkStrategy, which the SEC said managed $520 million in assets at its peak in 2008, didn’t admit or deny the agency’s claims in the settlement. A final judgment was entered in the civil case on Nov. 18, John Nester, an SEC spokesman, said.
The criminal case is U.S. v. Kapur, 12-mj-535, U.S. District Court, Southern District of New York (Manhattan).
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