Hedge Fund Managers Sentenced to Prison in Over $30 Million Fraud Scheme
|U.S. Attorney’s Office February 29, 2012|
ATLANTA—THOMAS REPKE, 58, of Salt Lake City, Utah, and JAMES JEFFERY, 59, of Belleville, Ontario, were sentenced late today by United States District Judge Orinda D. Evans to federal prison on charges of conspiracy to commit wire and mail fraud. REPKE and JEFFERY were principals of a Utah-based hedge fund operator known as Coadum Capital Advisors, which drew hundreds of investors nationwide into a series of investment funds from 2005-2008. The defendants defrauded 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, “The defendants in this major international investment fraud scheme defrauded over 200 victims around the country out of tens of millions of dollars, most of which has been dissipated in overseas accounts. They targeted seniors, retirees, and others simply looking for safe and secure returns, but now these corrupt managers will be in federal prison for years to come.”
REPKE was sentenced to 10 years in prison to be followed by five years of supervised release. REPKE was convicted of these charges on December 21, 2011 upon his plea of guilty. JEFFERY was sentenced to seven years and three months in prison to be followed by five years of supervised release. JEFFERY was convicted of these charges on April 12, 2011 upon his plea of guilty. Both defendants were ordered, jointly and severally, to pay $29,740,180 in restitution to over 200 victims.
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,” and these account statements reported the investors’ “Ending Principal Balance in Escrow Account.” The monthly account statements also stated a purported rate of interest or earnings that had been earned by the fund that month, which was generally 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 continuing to represent 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.
This case was investigated by special agents of the FBI, based on a referral from the staff of the Atlanta Division Office of the United States Securities and Exchange Commission.
Assistant United States Attorneys Justin S. Anand and Alana R. Black prosecuted 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 the U.S. Attorney’s Public Information Office at USAGAN.PressEmails@usdoj.gov or (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.