Regulators: 'Fund Manager' Was a Fraud

In a New Jersey civil suit, the Commodity Futures Trading Commission accuses Robert J. Sucarato of fraud in raising at least $1.5 million from investors

It's official: Robert J. Sucarato wasn't much of a hedge fund manager after all, regulators say. In a civil lawsuit, regulators charge Sucarato lost much of the money he solicited from investors, and he raised that money under false pretenses.

A New Jersey federal judge, at the request of the Commodity Futures Trading Commission, has frozen all of Sucarato's assets and ordered him not to destroy any documents pending a court hearing on May 8. The judge approved the asset freeze in response to the CFTC's Apr. 22 lawsuit, which was unsealed on Apr. 30. The suit accuses the longtime New Jersey resident with "employing a device, scheme, or artifice to defraud participants" in raising at least $1.5 million from at least five investors.

Sucarato did not return telephone calls or an e-mail seeking comment. It is unclear whether he has an attorney after his previous lawyer quit, citing lack of payment.

For nearly a year, several of Sucarato's investors have been battling with him, trying to get their money back. The attempts by investors to recoup their investment and expose Sucarato's alleged deceptions were described last month by BusinessWeek, which highlighted how Sucarato and other potential scam artists are using so-called virtual offices (BusinessWeek, 3/27/08) to make their operations appear larger and more established than they really are. A virtual office is a more elaborate version of an old-fashioned post office box, in which tenants—for as little as $100 a month—get access to a telephone answering service, a reception area, and conference rooms for meetings, along with a mailing address. Sucarato used a virtual office on Wall Street in New York and in Chicago to allegedly induce investors into giving him money.

Among the Accusations, Concealing Big Losses

The CFTC says that "contrary to the impression created by Sucarato" his money-management firm, New York Financial Co., "is not a well-established, successful New York investment firm staffed with experienced traders." Sucarato had claimed his two hedge funds controlled more than $7 billion in assets, employed more than 20 traders, and generated extremely high returns. For instance, the CFTC says Sucarato, 37, claimed a 10-year compounded return of more than 1,800% for one of his funds. By comparison, the Standard & Poor's 500-stock index, over that same time frame, has returned 102.7%.

In fact, regulators charge Sucarato worked alone, distributed false financial statements, misrepresented his background and accomplishments, and concealed big losses from trading commodity futures and options. "The sophistication required to fabricate an established management firm with a winning earnings record and the financial statements to back it up will not go unchallenged," says Gregory Mocek, the CFTC's director of enforcement.

The CFTC is scheduled to return to federal court on May 8 to tell a judge why the asset freeze against Sucarato should be made permanent. Sources say federal prosecutors in New Jersey are also investigating the money manager.

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