123RF

U.S. authorities have charged the co-founder of a hedge fund with fraud that allegedly cost investors US$40 million.

The U.S. Attorney’s Office for the Southern District of New York announced that it has charged the founder and former general partner of FF Fund I L.P., Andrew Franzone, with securities fraud and wire fraud for allegedly lying to investors about the fund’s investment strategy, liquidity and assets under management.

Authorities alleged that these misrepresentations induced more than 100 investors to invest more than US$40 million in the fund, which was unable to fulfill redemption requests in early 2019 and is currently being liquidated.

The U.S. Securities and Exchange Commission (SEC) also filed civil charges against Franzone, alleging that he defrauded investors, failed to eliminate or disclose conflicts of interest, and misappropriated fund assets.

Among other things, the SEC alleged that Franzone diverted assets from the hedge fund to an entity he owned, and invested remaining assets in highly illiquid private companies and real estate ventures.

“Andrew Franzone allegedly promised his clients access to his successful liquid trading strategy and consistent, positive trading returns. As alleged, those promises were lies,” said Audrey Strauss, U.S. attorney for the SDNY.

“While his investors lost money, Franzone enriched himself,” she added.

The SEC is seeking disgorgement, civil penalties, and permanent bans.

These allegations have not been proven.