Massachusetts securities regulators have moved to bar three Cambridge-based hedge funds and their operator, Yasuna Murakami, for doing business in the state. They allege that the operation is a Ponzi scheme that has collected about $15.3 million from at least 47 investors.
“This case represents a classic example of a shell game of moving the money from one investor to another with some left over to fatten the coffers of the money manager. It is yet another example of how rogue actors use every trick in the book to entice otherwise sophisticated investors to turn over their money based on promised high returns,” said Commonwealth Secretary William Galvin, in a statement.
Galvin’s office issued an administrative complaint Wednesday in which it charges Murakami with “material misrepresentations and omissions, misappropriation of investor funds, and operation of an illegal Ponzi scheme.”
Beyond incurring losses and using new investors’ money to pay prior investors, the complaint charges Murakami with misappropriating “millions” for his personal use — including stays at luxury hotels, liquor stores, specialty cars, spending at Nordstrom and Saks Fifth Avenue, and charges with American Express.
The complaint also seeks repayment to investors for losses, the disgorgement of all profits and an administrative fine.
According to the regulatory group, Murakami started the hedge funds in 2007 with the MC2 Capital Partners Fund. He created the fund with a classmate and sold it mainly to friends and family members.
It took in more than $3.5 million but had a negative cash balance of about $2.4 million in 2008, “which resulted in a margin call that virtually wiped out the investors’ equity,” Galvin’s office says.
The second fund, MC2 Capital Value Partners Fund, launched in 2008, had had net losses in its first three years.
“Over the life of the Partners Fund and the Value Fund, Murakami and the MC2 Entities failed to inform investors of the losses in both funds,” the complaint states. “In fact, Murakami and the MC2 Entities actively worked to conceal these losses from investors by soliciting additional investments and providing false or misleading performance numbers.”
In 2009, Murakami partnered with Donville Kent Asset Management of Toronto to launch the MC2 Capital Canadian Opportunities Fund. In 2011, Murakami and MC2 recruited investors and managed the fund’s back-office operations; Kent managed the investment portfolio.
“The association with Donville Kent was crucial in the decision of many to invest in the Canadian Fund, including one institutional investor from the Boston area who put in $2 million,” explained the state regulator.
Murakami allegedly used investor money from the Canadian Fund to fund promised returns or redemptions to Partners Fund and Value Fund investors.
In 2015, Donville Kent broke off relations with the MC2 entities, but Murakami did not inform Canadian Fund investors at large of this development, the state regulators say.
When he appeared before the Securities Division, Murakami invoked his right against self-incrimination.