CLEVELAND (HedgeWorld.com)–It probably seemed like a good idea at the time. Start a couple of hedge funds, raise a little money and get rich like the guys in the magazines.
Only for Jesse Bonner, 28, of Mantua, Ohio, the plan hit a few snags, culminating Thursday [Feb. 23] in a securities fraud charge filed against him by the U.S. Attorney’s Office for the Northern District of Ohio.
As it happened, Mr. Bonner wasn’t registered to sell securities in Ohio, or anywhere else for that matter, according to the U.S. Attorney’s Office complaint. And if he ever tried trading he wasn’t very good at it; Mr. Bonner’s “hedge funds” lost money every year for four years. Also, he didn’t follow the first rule of a good Ponzi scheme: keep raising money so you can pay off investors who get suspicious and demand their money back.
Mr. Bonner began his quest to be a hedge fund manager in late 2001. By September of last year, the FBI had caught up with him, but not before he spent at least some of the US$1.5 million he raised from among 38 investors in six states on himself. In its complaint, the U.S. Attorney’s Office charged Mr. Bonner with one count of securities fraud for lying to investors about what he was doing with their money, making up false returns, and creating fictional documents to cover his tracks.
According to the U.S. Attorney’s Office, shortly after starting what Mr. Bonner called Agnitio Fund Management LLC in late 2001, he began losing money. The two funds he purported to run, the Insula Fund and the Miletus Fund, continued to lose money through September 2005, despite guarantees he made to investors that the strategies would generate “extraordinary rates of return” of between 20% and 25% per quarter. At some point Mr. Bonner began spending investors’ assets on himself.
Nevertheless, Mr. Bonner reported to his investors that the funds were generating good returns. Some even gave him more money based on their conversations with him and the documentation he sent out. Those documents included fake financial and account statements, and phony performance summary documents. Additionally, according to the U.S. Attorney’s Office, on at least one occasion Mr. Bonner created an “independent” report from KPMG, which was supposed to be an audit of the firm. He also made up fake K-1 tax reporting forms and sent them to his investors. This had the effect of causing some of his investors to report income they didn’t earn.
Contact Bob Keane with questions or comments at email@example.com.