Elm Tree Investment Executives Charged by U.S. in Scam

  • Duo accused of running Ponzi scheme using supposed investments
  • Pair allegedly spent funds on expensive sports cars, jewelry

Elm Tree Investment Advisors LLC founder Fred Elm and the firm’s chief operating officer were charged in Manhattan with running a $17 million fraud scheme.

The executives of Florida-based Elm Tree are accused of falsely claiming they had access to pre-initial public offerings because of their business relationships with “leading” venture capitalist firms, according to a complaint filed in federal court.

Elm and COO Ahmed Naqvi induced more than 50 investors to put in more than $17 million based on false representations that their funds would be put into privately held companies like Twitter Inc., Alibaba Group Holding Ltd. and Uber Technologies Inc., according to the U.S.

Investors’ money was commingled in a single account and only about $7.1 million was actually invested, said Manhattan U.S. Attorney Preet Bharara. What the two didn’t lose in securities trading, Elm allegedly spent for personal expenses, including the purchase of a $1.75 million home, high-end furnishings, daily living expenses, jewelry and luxury cars including a Bentley, a Maserati and a Range Rover.

Ponzi Scheme

The two claimed they would take a 2 percent management fee plus 20 percent of any profit that Elm Tree earned, the government said. The fund never returned a profit, and the men used about $5.2 million of new investor funds to make payments to earlier investors in what prosecutors said was a Ponzi scheme. They are also accused of generating fictitious oral and written misrepresentations to investors about the business to evade detection, the U.S. said.

Elm, 46, was arrested at his home in Hollywood, Florida, and appeared in federal court in Florida on Wednesday. He was released on an unsecured $2.5 million bond co-signed by his wife, his lawyer, Christopher Bruno, said in a phone interview. Elm has agreed to appear in federal court in New York early next week to face the charges, Bruno said.

"Mr. Elm recently settled an SEC case in Miami and turned over significant assets to a court-appointed receiver," Bruno said. "Frankly, we’re disappointed with the government’s decision to file charges against him."

Naqvi, 47, isn’t in custody, said Jim Margolin, a spokesman for Bharara.

Both face charges that include securities fraud, wire fraud and conspiracy and might face as long as 20 years in prison if convicted of any of them.

Elm last month agreed to pay more than $896,000 to the SEC to resolve a civil suit filed against him, according to federal court records in Florida.

The criminal case is U.S. v. Elm, 16-mag-02259, U.S. District Court, Southern District of New York (Manhattan). The SEC case is SEC v. Frederic Elm, 15-cv-60082, U.S. District Court, Southern District of Florida.

(Corrects spelling of name in first paragraph of story that ran April 13.)
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