Hedge Fund Manager Charged in Manhattan Court

Hedge Fund Manager Charged in Manhattan Court

Nicholas Mitsakos, the founder of Matrix Capital, was arrested and charged in Manhattan federal court with securities and wire fraud in connection with a scheme to induce investments in a hedge fund by misrepresenting the fund’s performance and assets under management.

According to the allegations, Mitsakos fraudulently solicited investments in Matrix Capital by distributing marketing materials claiming that the fund had millions of dollars under management and had achieved outsized returns since 2012. In or about September 2015, one entity, referred to as Victim-1, invested approximately $2 million with Mitsakos based on these representations.

However, the claims made by Mitsakos to secure this investment were false. Matrix Capital had no assets under management, and its returns were based on a hypothetical stock portfolio that had been retroactively altered on multiple occasions to enhance the fund’s supposed performance. Rather than investing Victim-1’s money as promised, Mitsakos misappropriated parts of this money to pay personal expenses and expenses associated with his administration of the fund.

U.S. Attorney Preet Bharara stated, “Nicholas Mitsakos, founder of Matrix Capital, allegedly promised huge returns and told would-be investors that he had ‘a little more than $60 million’ in his hedge fund. But as alleged, Mitsakos essentially ran an imaginary portfolio, which just tracked the performance of certain stocks without actually having a financial position in them. Instead, Mitsakos allegedly spent much of his investors’ money on car payments, credit cards, and rent.”

Mitsakos surrendered to law enforcement today in Los Angeles and will be presented in the United States District Court for the Central District of California. The Securities and Exchange Commission (SEC) has also filed civil charges against Mitsakos.

The allegations against Mitsakos include creating an entity called Matrix Capital in or about October 2013, which purported to be a “long-short” hedge fund that invested in undervalued securities and sold overvalued securities short. Mitsakos and another co-conspirator sent marketing materials and newsletters to numerous investors, claiming that Matrix had returns “exceed[ing] all major indices,” including returns of approximately 25.4% in 2012, 66.3% in 2013, 20.9% in 2014, and 49.5% between January and October of 2015.

These representations were all false. Matrix Capital had not achieved the returns Mitsakos and his co-conspirator had represented to investors, and had no real assets before receiving an investment from Victim-1 in or about September 2015. Instead, Mitsakos and his co-conspirator maintained a hypothetical portfolio that tracked the performance of certain stocks, which they retroactively manipulated to improve its performance.

The case against Mitsakos is a clear example of the harm caused by white-collar crimes. It is essential for investors to be cautious and verify the legitimacy of investment opportunities before committing their funds. The prosecution of Mitsakos sends a strong message that such schemes will be pursued vigorously by the authorities.

Nicholas Mitsakos, the founder of Matrix Capital, faces serious charges and a lengthy prison sentence if convicted. The case highlights the importance of transparency and accountability in the financial sector.