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U.S. Says Fund Manager Edward Stein Ran Ponzi Scheme (
By David Scheer and Patricia Hurtado
April 1 (Bloomberg) -- The U.S. filed civil and criminal charges against New York hedge-fund manager Edward T. Stein, accusing him of running a “classic Ponzi scheme” that moved more than $55 million through accounts while preying on friends and acquaintances.
Stein, who controls Gemini Fund I hedge fund, DISP LLC and Prima Capital Management Corp., moved millions from at least 83 investors through accounts he controlled, the U.S. Securities and Exchange Commission said in an “emergency enforcement action” filed today in federal court in Manhattan.
Federal prosecutors in Brooklyn, New York, charged Stein, 59, with criminal wire fraud for allegedly cheating a client out of $6.5 million. He was released on $2 million bond and ordered to surrender his travel documents after an appearance before U.S. Magistrate Judge Joan Azrack in federal court in Brooklyn.
“Stein’s records are in disarray and he has produced no evidence to date that any of the funds he collected from investors are currently invested,” the SEC said in its complaint. “Stein solicits new investors even though his and the Stein entities’ financial condition appear dire.”
Stein, who manages the Gemini Fund and founded DISP, a firm investing in life-settlement policies, has deceived clients since 1992 and resorted to stealing their assets, the SEC said in its civil suit.
Detour Investment
Without telling investors, Stein arranged for Gemini to make its “primary” investment in Detour Media Group Inc., the fashion magazine publisher that filed for bankruptcy protection in 2003, the SEC said. Since then, he has used money from new investors to pay returns to “selected” Gemini clients, the agency wrote. He also used investor funds to buy a $1 million Manhattan condominium, the SEC said.
Among companies Stein controlled was Prima Capital Management Corp., which he ran from his offices in Roslyn, New York, the SEC said. Another company, Prima Capital Management Inc. of Denver, said in a statement that it has “no affiliation in any way” with Stein, the hedge funds or DISP.
Brian Maas, a New York lawyer representing Stein, declined to comment after today’s hearing.
Prosecutors said in their complaint that Stein defrauded a client last year by promising to invest the customer’s money in annuities. Instead, Stein used funds for other purposes, including transferring money to his personal accounts and to bank accounts he controlled, according to prosecutors in the office of Brooklyn U.S. Attorney Benton Campbell.
The unidentified victim sought out Stein as a financial adviser after inheriting a “substantial” sum of money, prosecutors said.
Investigation Continuing
Robert Nardoza, a spokesman for Campbell, said the investigation is continuing. Stein was arrested by Federal Bureau of Investigation agents at his home in Manhattan today, Nardoza said. He faces as much as 30 years in prison if convicted of wire fraud. The SEC, which said it won a court order freezing Stein’s assets, is seeking to confiscate “ill- gotten” profits and impose unspecified fines.
The regulatory case is SEC v. Stein, 09-cv-3125, U.S. District Court, Southern District of New York (Manhattan) The criminal case is U.S. v Stein, 09-MJ-308, filed in Eastern District of New York (Brooklyn).
To contact the reporters on this story: David Scheer in New York at dscheer@bloomberg.net; Patricia Hurtado in Brooklyn Federal Court at pathurtado@bloomberg.net.
Last Updated: April 1, 2009 17:21 EDT
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