by James Welsh on August 13, 2012
The money didn’t roll in for long. But while it did, three New Jersey men charged with running a phony hedge fund lived large, with trips to Paris, luxury cars, expensive hotel suites, and thousands of dollars blown in night clubs.
Federal prosecutors say the three – Carmelo Provenzano, Daniel Dragan, and George Sepero – are accused of ripping off investors for millions and claiming to have a proprietary algorithm software program that gave them a huge edge in foreign currency exchange trading.
The U.S. Attorney’s Office for the District of New Jersey reports that last week, Provenzano, 29, of Garfield, N.J., and Dragon, 41, of Lebanon, N.J., entered guilty pleas to wire fraud conspiracy in connection with running a Ponzi scheme. Their alleged partner, 39-year-old George Sepero, of Glen Rock, N.J., is currently facing a 17-count criminal indictment stemming from the same allegations.
Prosecutors say that from 2009 through July of 2011, the trio did business under various corporate names. They solicited more than $4 million from about 70 investors, claiming to have pulled in returns of 170 percent through forex trading over the prior two years.
According to court documents, Sepero told one potential investor – who was actually an undercover law enforcement agent – that clients received 80 percent of the returns, and “the house” got 20 percent. The men are also accused of e-mailing bogus “screen shots” of successful currency trades to investors, and of fabricating dummy account statements.
But little or no trading actually occurred, and the defendants made Ponzi payments to original investors with money from later ones, officials said.
One of Sepero’s alleged victims was an elderly, desperately ill woman who let him take over her annuity account. He treated it like a personal piggy bank and eventually drained it dry, court documents show. At one point, prosecutors said, Sepero gave the woman’s family a phony account statement showing that her annuity held $750,000, when it was actually worth less than $17.
The men also created a fictional character named “Mel Tannenbaum,” claiming he was an accountant. They used false e-mails from him to perpetuate the myth of high returns with their investors.
Meanwhile, the defendants spent investor money on home improvements and jewelry, and ran up credit card bills averaging $25,000 weekly. They took extravagant vacations that included first-class airline tickets to Paris, Chicago and Los Angeles.
For a single night out in Los Angeles, they ran up an $18,241 bar tab, which included a $4,000 tip, prosecutors said. Investor money was also used to buy luxury vehicles, including a Ford F-350 Harley-Davidson model that cost $80,000, and a $70,000 Range Rover.
As these things invariably do, the whole scam finally fell apart.
The wire fraud conspiracy counts against Dragan and Provenzano carry a maximum penalty of 20 years in prison and a $250,00 fine, or twice the gain or loss from the offense. Provenzano is scheduled to be sentenced on Nov. 16. Dragan’s sentencing will be on Nov. 20.
The multi-count indictment against Sepero was handed down on June 27. Whether he will elect to stand trial or follow his colleagues in pleading guilty remains to be seen.
Want a daily digest of articles like this one, plus the latest compliance jobs at top-tier organizations? Join 50,000 other compliance, risk governance, and regulatory professionals and subscribe to our free afternoon newsletter. Where do you find news, style, and career all in one place? The Executive Gateway, our new lifestyle magazine.
James Welsh is a financial writer specializing in compliance and securities fraud issues. He also writes the daily “Top 10/Street Patrol” column at www.thestreetsweeper.org, and has held staff editing and writing positions at newspapers including The Times-Picayune of New Orleans and the Orange County Register in California.