Brenda Smith, Securities Fraud, New Jersey 2019

NEWARK, N.J. - A Philadelphia woman has been indicted for orchestrating a $68 million securities fraud scheme in New Jersey, U.S. Attorney Craig Carpenito announced.

Brenda Smith, 59, of Philadelphia, Pennsylvania, was indicted on six counts of wire fraud and one count of securities fraud. Smith was initially charged by complaint in August 2019.

According to documents filed in this case and statements made in court, Smith managed and controlled Broad Reach Capital LP, a purported investment fund. From February 2016 through August 2019, Smith allegedly orchestrated a scheme in which she made misrepresentations to investors and promised that she would invest their funds in particular trading strategies that Broad Reach Capital was optimally situated to execute. Instead of investing the money as she advertised, Smith diverted tens of millions of dollars of investor funds out of Broad Reach Capital for purposes inconsistent with the trading strategies.

Smith misrepresented the success and performance of Broad Reach Capital to investors and prospective investors. She touted Broad Reach Capital as a trade-focused investment fund that was highly liquid and employed a robust risk management program. Smith distributed written materials about Broad Reach Capital to investors and prospective investors that included purported historical performance information, such as claimed annual returns of over 33 percent in 2017 and positive monthly returns in 2018.

The total cash and securities in the Broad Reach Capital bank and brokerage accounts decreased from December 2016 through June 2019. For example, the written materials claimed that Broad Reach Capital had a 1.76 percent return in February 2018 when in reality, Broad Reach Capital's brokerage accounts lost over 50 percent of their value.

As part of the fraudulent scheme, Smith collected more than $68 million of cash into Broad Reach Capital from approximately 40 investors. At its peak, however, the value of cash and securities in the Broad Reach Capital bank and brokerage accounts did not exceed $32 million. When investors requested redemption of their investments, Smith diverted other investors' funds to pay the requested redemption amounts.

The wire fraud counts carry a maximum penalty of 20 years and a $250,000 fine, or twice the gross amount of gain or loss from the offense, whichever is greater. The securities fraud count carries a maximum penalty of 20 years in prison and a $5 million fine.

Source: https://www.justice.gov/usao-nj/pr/philadelphia-woman-indicted-68-million-securities-fraud-scheme