Owner of New Jersey Hedge Fund Charged for Defrauding Investors of $4 Million
NEWARK, NJ—The owner and manager of a New Jersey hedge fund was arrested today and charged with allegedly orchestrating an advance fee scheme that defrauded investors of $4 million, U.S. Attorney Paul J. Fishman announced.
Nicholas Lattanzio, 58, of Montclair, New Jersey, is charged by complaint with three counts of wire fraud and two counts of securities fraud. FBI agents arrested Lattanzio at a residence in West Orange, New Jersey, this morning. He is scheduled to appear this afternoon before U.S. Magistrate Judge Cathy L. Waldor in Newark federal court.
According to the complaint unsealed today:
From June 2013 through November 2014, Lattanzio allegedly orchestrated a large-scale advance fee scheme through which he, his hedge fund, the Black Diamond Capital Appreciation Fund L.P. (BD Fund), and several other related entities collected millions of dollars in upfront fees from unsuspecting investors in exchange for the promise of future loans or investment opportunities that did not materialize. Instead of investing the victims’ money and providing the loans as promised, Lattanzio allegedly stole the majority of the funds and used them for personal expenses, including the purchase of a $1 million home, a luxury vehicle, expensive jewelry and the payment of thousands of dollars in credit card debt that he incurred for other personal expenses. The credit card expenditures included more than $24,000 for a family trip to Hawaii, more than $50,000 for tickets to the New York Yankees, and thousands of dollars in clothes, restaurants, jewelry and furniture. Lattanzio did not disclose this spending to his victims, but instead mislead them into believing that their investments were safe.
In June 2013, a company engaged in the business of oil and gas operations, production, development and acquisition (Company A) began seeking external funding to develop its existing assets and acquire new assets. Company A was introduced to an individual (Individual 1) affiliated with International Lending Services, an entity that purported to market financing opportunities, including those allegedly provided by the related Black Diamond entities. Company A was told that it had to deposit $2 million with the Black Diamond entities as a prerequisite for a $20 million lending facility through a third party lender.
Prior to any exchange of funds, Lattanzio and others acting at his direction made numerous misrepresentations to Company A to induce it to transfer the $2 million deposit to the Black Diamond entities, including telling the company that the financing was all but guaranteed, but that if it failed to close within 120 days, Company A’s $2 million could be returned; the $2 million deposit would be invested with the Black Diamond entities and would entitle Company A to a limited partnership interest in the BD Fund, a successful hedge fund managed by Lattanzio; and that Company A would be one of many investors in the BD Fund, which had a five-year track record of steady earnings.
Based on these misrepresentations, on Dec. 20, 2013, Company A caused $2 million to be wired to an account controlled by Lattanzio. The funds were not held as an escrowed deposit/investment in the BD Fund. Rather, Lattanzio allegedly converted the majority of the funds to his own use. He wired approximately $124,000 to the bank account of a Land Rover dealership for the purpose of purchasing a luxury car and spent $102,185 at a luxury jewelry store in Hackensack, New Jersey, to purchase a platinum and diamond ring that included a bezel set with three separate brilliant cut diamonds that each weighed over one carat. Over the next several months, Lattanzio continued to mislead Company A it into believing that its money was secure and that the financing was still imminent. Ultimately, when it became clear that the financing would not be provided, Company A requested the return of its $2 million per the terms of its agreement with Lattanzio. To date, however, Company A has not received any of its $2 million deposit or interest earned in connection with the deposit. Bank records confirm that Lattanzio converted the majority of Company A’s $2 million to his own benefit, including using the funds to pay private school tuition fees, golf club membership dues, credit card bills, and to purchase a luxury vehicle.
In 2014, a second company (Company B) was seeking financing to develop a hotel project in Georgia. Company B was introduced to Lattanzio and Individual A and presented with a financing package and structure similar to that presented to Company A, including a requirement that Company B deposit a substantial amount of money with the Black Diamond entities and representations that the deposit could be returned if the financing did not close. Company B wired $1.95 million to an account controlled by Lattanzio and the BD Fund as a deposit purportedly required to secure close to $10 million in financing by a third party. Lattanzio immediately converted the funds to his own use, including by purchasing a home in Montclair for more than $1 million.
Over subsequent months following Company B’s deposit, Lattanzio employed a number of delay tactics and made additional misrepresentations to Company B to conceal his actions with respect to its deposit funds. When it became apparent to Company B that there was no funding forthcoming, it demanded the return of its escrow deposit, which Lattanzio refused.
The wire and securities fraud counts with which Lattanzio is charged each carry a maximum potential penalty of 20 years in prison and a $250,000 fine, or twice the gain or loss from the offense. The complaint also seeks forfeiture of the home Lattanzio purchased in Montclair, New Jersey, a 2013 BMW 650 and various pieces of jewelry.
U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Richard M. Frankel in Newark, for the investigation leading to today’s arrest. He also thanked the U.S. Securities and Exchange Commission’s New York Regional Office, under the direction of Andrew Calamari, and the N.J. Bureau of Securities, within the State Attorney General’s Division of Consumer Affairs, under the direction of Acting Attorney General John J. Hoffman.
The government is represented by Assistant U.S. Attorney Nicholas P. Grippo of the Economic Crimes Unit, and Assistant U.S. Attorney Peter Gaeta of the Office’s Asset Forfeiture and Money Laundering Unit.
The charges and allegations contained in the complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.