Alleged Beverly Hills bunko artist charged with $38M fraud
An owner of two hedge funds has been slapped with a complaint from the Securities and Exchange Commission for scamming 20 investors out of more than $38 million.
An owner of two hedge funds has been slapped with a complaint from the Securities and Exchange Commission for scamming 20 investors out of more than $38 million.
The regulator accused Bradley L. Ruderman, manager of Beverly Hills, Calif.-based Ruderman Capital Partners LLC and Ruderman Capital Partners A LLC, of generating false account statements and claiming that the funds had more than $800 million in assets and earned consistent annual gains between 15% and 61%.
Neither fund was registered with the SEC.
Mr. Ruderman told the clients that he would use a “long-short strategy,” investing in a diversified mix of equities, with positions in securities that were issued by Apple Inc., of Cupertino, Calif., Microsoft Corp. of Redmond, Wash., San Diego-based Qualcomm Inc. and Bentonville, Ark.-based Wal-Mart Stores Inc., according to the complaint.
He also lured at least one prospective investor by saying that Lowell Milken, chairman of the Milken Family Foundation in San Diego and brother of Michael Milken, and Larry Ellison, chief executive of Oracle Corp. in Redwood City, Calif., were investors in the hedge funds.
The account statements sent to clients tracked the bogus returns going back to 2002 — at the end of the tech bust — when the Capital Partners fund purportedly managed to grow by 55.99%, according to the SEC’s complaint.
In 2008 — when many investments floundered — Mr. Ruderman also told investors that this fund’s returns rose by 14.99%, according to the SEC.
The real story was that the Capital Partners fund lost more than $3 million last year, ending the year with a net value of $588,246. Capital Partners A lost $1.9 million last year and had a total year-end liquidating value of $43,379, the SEC noted. As of yearend 2008, neither fund had holdings in Apple, Microsoft, Qualcomm or Wal Mart.
The SEC also accused Mr. Ruderman of using new investor funds to pay an earlier investor.
In November, a client asked to withdraw $750,000 from Capital Partners, but there wasn’t enough money in the hedge fund. However, after two new investors deposited $500,000 each, Mr. Ruderman used the cash to pay off the first investor in what the SEC deemed a “Ponzi-like payment.”
In March and April, he also made two $100,000 wire transfers from Capital Partners’ brokerage account to the hedge fund’s local bank account. As of the end of March, the funds had total remaining assets of about $387,000.
The bell tolled for Mr. Ruderman’s scheme when his attorney sent investors a letter on April 15, saying that “there is very little value in the assets held by the [funds],” the SEC said.
He has been in the doghouse before: Though he had his Series 3, 7 and 63 licenses, they’re no longer valid because he hasn’t been associated with a registered entity in more than six years. In 2001, he was censured by the New York Stock Exchange, which fined him $5,000 and imposed a four-month membership bar for improper post-execution allocation of block trades and failure to report a customer complaint.
The SEC is seeking civil penalties, disgorgement of all ill-gotten gains and an asset freeze — among other punishments — against Mr. Ruderman and the funds.
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