March 23 (Bloomberg) -- For Vincent P. McCrudden, the former hedge-fund manager charged with threatening to kill financial regulators including U.S. Securities and Exchange Commission Chairwoman Mary L. Schapiro, his prosecution is the culmination of a decade-long government vendetta.
McCrudden was arrested Jan. 13 on charges he used profanity-filled e-mails and Web posts to threaten 47 current and former officials of the SEC, the Commodity Futures Trading Commission, the National Futures Association and the Financial Industry Regulatory Authority. According to him, he is being persecuted for fighting back against unfair regulatory actions that destroyed his career.
The 50-year-old ex-commodities trader sits in a New York City jail near John F. Kennedy International Airport, facing a maximum sentence of 10 years in prison on two federal counts of “transmission of threats to injure.” Prosecutors alleged McCrudden had an “execution” list on his company website. “Go buy a gun, and let’s get to work in taking back our country from these criminals,” he wrote on the site, according to prosecutors. “I will be the first one to lead by example.”
McCrudden, according to Finra, worked at New York firms Tullett & Tokyo Liberty Securities Inc., now Tullet Prebon Plc, Pali Capital Inc., and Centurion Securities LLC. He denied he meant to harm anyone. He claims regulators’ pursuit of him, while failing to detect frauds including Bernard Madoff’s $20 billion Ponzi scheme, shows their warped priorities.
“The most important thing to me, obviously, is the perception of due process and fairness,” he said in a phone interview from the Queens detention center where he’s being held without bail. No trial date has been set.
Robert Nardoza, a spokesman for U.S. Attorney Loretta E. Lynch in Brooklyn, said in an e-mail that the government is prepared to present the evidence against McCrudden at trial. He declined to comment further. In court papers, the U.S. alleged McCrudden did indeed intend harm, writing in a Sept. 30 e-mail to NFA Chief Operating Officer Daniel A. Driscoll that “It wasn’t ever a question of ‘if’ I was going to kill you, it was just a question of when.”
The message was purportedly from CFTC Chairman Gary Gensler, though the government said that its language and origin in Singapore, where McCrudden lived, pointed to him.
McCrudden, a divorced father of two, denied sending the e-mail.
“I’m in jail on an e-mail I didn’t write,” he said in the March 5 phone interview.
McCrudden grew up in Kings Park on New York’s Long Island, and in upstate Nicholville, said his sister Kathleen Warszycki. He left the University of Rhode Island in 1983 without graduating to play professional soccer, which he did for less than a year with the Tampa Bay Rowdies in Florida and the Minnesota Strikers.
He has worked on Wall Street since 1987, running trading desks for gold, crude oil and credit derivatives, according to court papers. McCrudden was once global head of foreign-exchange derivatives at Garban Plc, now part of London-based ICAP Plc.
“I’ve executed hundreds of billions of dollars of financial instruments during my whole career,” the former hedge-fund manager said. “What I’m most proud of is I’ve never had a customer complaint.”
McCrudden’s troubles began in 1996 after he started Hybrid Fund LP and it suffered losses on copper trades. He allegedly masked shortfalls in statements to his investors by including money he expected to get in a lawsuit, prosecutors said.
He later made good on those losses through a settlement of the suit, in which Sumitomo Corp. was accused of manipulating the copper market. In 2002, McCrudden was indicted by a federal grand jury on 15 counts of mail fraud over the alleged false statements he made.
“That’s really the crux of what started my journey,” McCrudden said from jail.
At his 2003 trial in federal court in Central Islip, New York, about 50 miles east of Manhattan, the jury deliberated for less than an hour before finding him not guilty, according to court records.
Seeking to re-establish his career, McCrudden applied in 2004 for registration with the NFA. The association denied his application because of the alleged overstatements that resulted in his 2002 indictment. The association held a one-day hearing in which the main evidence was the criminal-trial transcript. No account statements were cited, according to court papers.
The NFA said McCrudden’s testimony, that NFA and CFTC staff members whose names he couldn’t remember told him he could include the potential Sumitomo recovery as an asset, wasn’t credible.
“The jury believed that the allegations against him were extremely weak,” said Barry J. Pollack, a lawyer at Miller & Chevalier Chartered in Washington who represented McCrudden in an appeal of the NFA decision. “Then the CFTC came after him on the same facts.”
The CFTC in 2006 and the U.S. Court of Appeals in Manhattan in 2008 upheld the NFA decision to deny McCrudden’s registration. Karen Wuertz, a senior vice president at NFA, and Scott Schneider, a CFTC spokesman, declined to comment.
After the NFA turned down his request for materials he said he needed for an appeal, McCrudden allegedly told an NFA lawyer he was “coming out to Chicago” to get him, according to a later ruling by the National Adjudicatory Council, which hears appeals of Finra decisions.
McCrudden said he agreed to see a psychologist for a year to address anger-management issues rather than be prosecuted for making threats. As part of the deal, McCrudden wasn’t allowed to contact the NFA or CFTC, he said.
Extend the Therapy
He agreed to extend the therapy rather than be prosecuted after the government said he sent a package with public filings and newspaper clippings about him to the CFTC, according to his lawyer.
McCrudden, who pleaded not guilty in the current case, said the package is another reason he’s still in jail today. He said he didn’t send it.
The former trader’s lawyer, Bruce A. Barket, contends regulators have gone after his client because of the 2003 acquittal, and because “it irritates them to have their unfairness, their inequity highlighted.”
McCrudden’s case presents a “chicken-and-egg” question of whether the regulators pursued him because of his stridency, or he became increasingly strident because of the pursuit, said Barket, of Quadrino Schwartz in Garden City, New York.
“Certainly that language that’s been reported that he used is not excusable, but at the same time the level of frustration is understandable,” Pollack said.
In the current prosecution, U.S. District Judge Denis R. Hurley in Central Islip denied McCrudden bail last month, saying he feared the money manager “will carry through on some of these threats.”
Stanley G. Tobin, a friend of McCrudden and a former trader, said that while McCrudden is “extremely honest” and “warm and caring,” he has “taken an extremely unwise approach in how he deals with his legal and regulatory issues.”
“He feels that he’s been mistreated, as many people do when they deal with a regulatory agency,” Tobin said.
McCrudden’s ex-wife wrote in a letter filed with the court that, “although he is hot tempered and lashes out at times with words, he has never ever done anything to harm another person.”
In June 2008, Finra brought a complaint against McCrudden after an investigator discovered an e-mail allegedly firing him from New York broker-dealer Hedge Fund Capital Partners LLC, which he joined in 2005 as a trader. The investigator compared it with a regulatory form stating that he left voluntarily.
Negotiated a Deal
McCrudden said the situation came about because of disputes with HedgeCap, including one over his commissions. After that e-mail was sent, his lawyers negotiated a deal that included his voluntary departure, he said. Howard Jahre, HedgeCap’s founder, declined to comment.
Finra found that McCrudden induced HedgeCap to file a false form and that his “string of profanity-laced, threatening communications” with HedgeCap management “violated the high standards of commercial honor required by participants in the securities industry.”
The agency fined him $12,500 and suspended him for 35 days. The adjudicatory council increased the fine to $50,000 and the suspension to one year. Michelle Ong, a spokeswoman for Finra, declined to comment.
Finally, last Dec. 1, the CFTC alleged in a lawsuit filed in federal court in Central Islip that McCrudden illegally started his Hybrid Fund II LP in May 2008 without registering with the commission.
Close the Fund
McCrudden said he was forced to close the fund in part because of “false disclosures” by regulators and negative publicity stemming from the NFA and CFTC decisions against him.
The ex-hedge fund manager learned of the CFTC lawsuit while in Singapore, where he moved because his fiancée took a position there, he said. Following the CFTC action, law-enforcement officials visited one of McCrudden’s company websites and saw the alleged threats that are at the center of his prosecution.
McCrudden said he posted the pages in response to the CFTC lawsuit. He defined “execution” on the site as “the formal process by which a contract is made valid and put into binding effect.” He added that definition later, prosecutors said.
“I will defend 100 percent of what I’ve written and they’ll just take one sentence from it,” McCrudden said.
The CFTC seeks to permanently ban McCrudden and his companies from registering with it and to prevent him from trading for himself. On March 2, the agency said McCrudden never responded to the lawsuit and asked Hurley, who is presiding over both the CFTC suit and the criminal case, for a default judgment.
“That Mr. McCrudden may have written vile and grossly inappropriate e-mails or Web postings, literally from the other side of the earth, is a far cry from a present intention to actually injure anyone,” Barket wrote in a Feb. 2 court filing seeking bail for his client.
The criminal case is U.S. v. McCrudden, 11-cr-00061, and the civil case is U.S. Commodity Futures Trading Commission v. McCrudden, 10-cv-05567, U.S. District Court, Eastern District of New York (Central Islip).
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