Manhattan U.S. Attorney and Acting FBI Assistant Director in Charge Announce Arrest of Hedge Fund Principal for Allegedly Stealing Over $1 Million in Investor Funds

Preet Bharara, the United States Attorney for the Southern District of New York, and Mary Galligan, the Acting Assistant Director in Charge of the New York Field Office of the Federal Bureau of Investigation (FBI) announced today that Berton Hochfeld, the manager of Hochfeld Capital Management LLC (“Hochfeld Capital”), was arrested on securities fraud and wire fraud charges for orchestrating an investment scheme in which he allegedly stole more than $1 million from investors. He was arrested this morning at his residence in Stamford, Connecticut, and was presented today in Manhattan federal court before U.S. Magistrate Judge Andrew J. Peck.

Manhattan U.S. Attorney Preet Bharara said, “Berton Hochfeld and others like him who allegedly use their businesses to lure and deceive investors and then steal their money will not be tolerated by this office.”

FBI Acting Assistant Director in Charge Mary Galligan said, “Hochfeld allegedly perpetrated a brazen swindle. In essence, he stole money from the fund and lied to investors to conceal the theft. While there was nothing particularly sophisticated about his method, it was lucrative until detected. The FBI is committed to stopping all securities scams.”

According to the allegations in the complaint unsealed today:

Hochfeld was the manager and organizer of Hochfeld Capital, a limited liability company incorporated in Delaware that, at various times, maintained an office in New York, New York. Hochfeld Capital, in turn, served as the General Partner of the Heppelwhite Fund LP (the “Heppelwhite Fund”), a hedge fund that was formed to invest in publicly traded securities, mainly in the technology sector. In connection with the management of the Heppelwhite Fund, Hochfeld made false representations to investors regarding their investments and misappropriated their money.

For example, by December 2010, Hochfeld was aware that Hochfeld Capital’s internal accounting for the Heppelwhite Fund reflected an inflated net asset value (NAV), as compared to the value reflected in the books of the prime broker where the fund’s assets were actually located. Despite his knowledge of the disparity, Hochfeld caused monthly statements to be sent to Heppelwhite Fund investors that reflected the inflated NAV calculated by internal accounting records.

From April 2011 through October 2012, Hochfeld also withdrew money from the Heppelwhite Fund for his own personal use, ultimately misappropriating more than $1 million. During this period, at Hochfeld’s direction, monthly account statements were provided to Heppelwhite Fund investors that falsely represented the fund’s value by failing to account for the money that he had withdrawn. At a meeting in October 2012, Hochfeld admitted to certain investors that he had taken more than $1 million from the Heppelwhite Fund and that he spent portions of that money on antiques and vacations.

* * *

Hochfeld, 66, is charged with one count of securities fraud and one count of wire fraud. He faces a maximum penalty of 40 years in prison on the charges. Hochfeld also faces a maximum fine of $5 million or twice the gross gain or loss derived from the crime for the securities fraud charge and a maximum fine of $250,000 or twice the gross gain or loss derived from the crime for the wire fraud charge.

Mr. Bharara praised the investigative work of the FBI. He also thanked the U.S. Securities and Exchange Commission for their assistance.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which Mr. Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. 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.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Jillian Berman is in charge of the prosecution.

The charges contained in the Complaint are merely accusations and the defendant is presumed innocent unless and until proven guilty.