Principals of Defunct Hedge Fund Plead Guilty to International Fraud Scheme
Thomas Repke and James Jeffery Defrauded Over 200 Investors of Over $30 Million
|U.S. Attorney’s Office December 21, 2011|
ATLANTA—THOMAS REPKE, 58, of Salt Lake City, Utah, pleaded guilty today in federal district court to conspiracy to commit fraud, less than two weeks before his jury trial was scheduled to begin on January 3, 2012. His codefendant and former business partner, JAMES JEFFERY, 59, of Belleville, Ontario, Canada, pleaded guilty in April 2011. REPKE and JEFFERY were the principals of a Utah-based hedge fund operator known as Coadum Advisors, which drew hundreds of investors nationwide into a series of investment funds from 2005-2008. The defendants pleaded guilty to conspiring to defraud their investors by lying to them about how their money was invested, what returns were being earned, and what balances investors held.
United States Attorney Sally Quillian Yates said, “Today, the lead defendant in a major international investment fraud scheme pleaded guilty to participating in a conspiracy that defrauded over 200 victims from across the country out of tens of millions of dollars, most of which was dissipated in overseas accounts. Like so many investment fraud schemes, this one was targeted at seniors, retirees, and others simply looking for safe and secure returns. The Financial Fraud Task Force will continue to root out fraud to restore faith and confidence in our investment system.”
Brian D. Lamkin, Special Agent in Charge, FBI Atlanta Field Office, stated, “Today’s plea is another step toward bringing justice for the many investors who lost so much. The financial damage to the victims in this international, multi-million dollar investment fraud scheme, cannot, however, be undone. The FBI is pleased with its role in bringing this matter to justice.”
According to United States Attorney Yates, the charges, and other information presented in court: REPKE and JEFFERY operated Coadum Capital from 2005 through early 2008, which at its height attracted nearly 250 investors and nearly $40 million in investments. Coadum offered shares in hedge funds and advertised monthly returns often exceeding 5 percent. Part of the sales pitch that Coadum made to investors was that their funds would remain protected in an escrow account and would therefore not be at risk. For example, several investors were provided marketing materials which read, “Cash Deposit ALWAYS remains in escrow in your name,” and “Cash Depositor’s principal deposit NEVER at risk.”
REPKE and JEFFERY also described the investments in monthly account statements sent to investors as “Principal Preserved Alternative Investments for Growth Oriented Clients.” These account statements reported the investors’ “Ending Principal Balance in Escrow Account” and a purported rate of interest or earnings that had been earned by the fund that month, which generally was between 3-7 percent.
In fact, although investors were instructed to and did transmit much of their funds to one or more supposed “escrow” accounts, including one in Atlanta, the money did not stay in any such account. Rather, unbeknownst to investors, REPKE and JEFFERY transferred over $20 million overseas to accounts in Switzerland and the Mediterranean island of Malta. This money was supposedly invested in a series of hedge funds or other investments operated by a supposed Malta-based trader. These investments produced no earnings at all, and, in fact, by the end of 2007 only a fraction of the transferred funds remained deposited in these European accounts.
REPKE and JEFFERY also used over $10 million in supposedly escrowed investor funds to pay expenses to operate the business, to pay investors who had requested distributions of supposed earnings, and to fund various small companies mostly owned by the Defendants themselves or relatives. The Defendants also paid themselves approximately $500,000 in cash over a two year period.
REPKE and JEFFERY continued to send account statements every month to investors that represented that their funds remained intact, preserved in escrow accounts, and that monthly earnings of 3-7 percent continued to accrue. REPKE and JEFFERY knew these statements were false, because they knew the funds were not protected in escrow accounts, had not been generating earnings, and the balances being reported to investors were inflated.
Through 2007, REPKE and JEFFERY generally honored requests by investors for distributions of supposed earnings that the investors had been told existed. This was one of the methods the defendants allegedly used to give Coadum the appearance of a legitimate, profitable fund. However, because Coadum had received no earnings from its investments during this period, REPKE and JEFFERY were only able to make these payments by diverting newly invested funds from other investors. The investors were not told that newly-invested monies, and not actual “earnings,” were a principal source of the distributions they received.
REPKE and JEFFERY were indicted in December 2010 on 22 counts of mail fraud, wire fraud and conspiracy. They each pleaded guilty to the conspiracy charge, Count One, which carries a maximum sentence of 20 years in prison and a fine of up to $250,000. In determining the actual sentence, the Court will consider the United States Sentencing Guidelines, which are not binding but provide appropriate sentencing ranges for most offenders.
Sentencing is scheduled for February 29, 2012, at 3 p.m., before United States District Judge Orinda D. Evans.
This case is being investigated by special agents of the Federal Bureau of Investigation, based on a referral from the staff of the United States Securities and Exchange Commission (“SEC”). The SEC brought a lawsuit that shut down the Coadum funds in 2008. The criminal investigation of this matter and numerous civil cases arising from the SEC’s enforcement actions remain ongoing. The Department of Justice and the SEC have also been working with international authorities in an attempt to repatriate some of the lost investor funds that had been transferred overseas.
Assistant United States Attorneys Justin S. Anand and Alana R. Black are prosecuting the case.
This law enforcement action is part of President Barack Obama’s Financial Fraud Enforcement Task Force.
President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
For further information, please contact Sally Q. Yates, United States Attorney, or Charysse L. Alexander, Executive Assistant United States Attorney, through Patrick Crosby, Public Affairs Officer, U.S. Attorney’s Office, at (404) 581-6016. The Internet address for the HomePage for the U.S. Attorney’s Office for the Northern District of Georgia is www.justice.gov/usao/gan.