Brenda Smith, a 61-year-old woman from Philadelphia, has admitted to orchestrating a $100 million securities fraud scheme, Acting U.S. Attorney Rachael A. Honig announced.
Smith pleaded guilty by videoconference before U.S. District Judge Madeline Cox Arleo to Count Seven of an indictment charging her with securities fraud. According to documents filed in this case and statements made in court, Smith managed and controlled Broad Reach Capital LP, a pooled investment fund/hedge fund that was established in February 2016 and was open to accredited investors with a minimum investment of $1 million.
From February 2016 through August 2019, Smith 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 allegedly optimally situated to execute. Smith referred to these strategies as dividend capture, VIX Convergence, and opportunistic trading.
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. In fact, the total cash and securities in the Broad Reach Capital bank and brokerage accounts decreased from approximately December 2016 through June 2019.
Over the course of the scheme, Smith collected more than $100 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 approximately $32 million. Instead of investing the money as she promised, Smith transferred tens of millions of dollars out of Broad Reach Capital to entities she controlled for purposes inconsistent with the trading strategies, including more than approximately $10 million for mineral mining operations and approximately $2 million for American Express credit card bills.
The securities fraud count to which Smith pleaded guilty carries a maximum penalty of 20 years in prison and a $5 million fine. Sentencing is scheduled for Jan. 20, 2022. The U.S. Securities and Exchange Commission (SEC) Philadelphia Regional Office previously filed a civil complaint against Smith based on the same conduct.
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Key Facts
- State: New Jersey
- Category: Fraud & Financial Crimes
- Source: DOJ Press Release â†â€â€
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