Washington, D.C., May 5, 2008 (Lawfuel) – Securities and Exchange Commission has obtained an asset freeze and other emergency action to stop a $30 million hedge fund fraud by a San Diego-area investment adviser, Plus Money, Inc.
The SEC’s complaint alleges that since at least May 2004, Plus Money and its principal, Matthew La Madrid of Jamul, Calif., have managed hedge funds (the Premium Return Funds) that raised more than $30 million from approximately 300 investors by telling them the funds would engage in a covered call options trading strategy.
Unbeknownst to investors, Plus Money and La Madrid allegedly abandoned the covered call trading strategy in the fall of 2007, emptied the money out of the Premium Return Funds’ brokerage accounts, and dissipated the money through a series of illicit transfers. Plus Money failed to make monthly payments to the Premium Return Funds’ investors beginning in February 2008.
“Our complaint alleges that the defendants defrauded unsuspecting investors in a purported hedge fund,” said Linda Chatman Thomsen, Director of the SEC’s Division of Enforcement. “This action reaffirms the Commission’s commitment to taking emergency action when necessary to freeze ill-gotten gains for the protection of investors.”
Rosalind R. Tyson, Acting Director of the SEC’s Los Angeles Regional Office, said, “As alleged in our complaint, La Madrid and Plus Money defrauded investors when they made undisclosed transfers of investor funds which were rapidly dissipated. In such cases, we are determined to act quickly to halt ongoing violations and freeze any money for the benefit of wronged investors.”
On April 28, the SEC filed an emergency action to halt the ongoing fraud. The Honorable Roger T. Benitez, U.S. District Court Judge for the Southern District of California, issued an order on April 30 freezing the assets of the defendants and the relief defendants.
The SEC’s complaint alleges that investors were not told that in the fall of 2007, La Madrid and Plus Money transferred nearly all of the money from Premium Return Funds’ brokerage accounts to Vision Quest Investments, a La Madrid-controlled account, which in turn transferred $10 million to relief defendant Palladium Holding Company.
According to the SEC’s complaint, Palladium:
Transferred $5 million to its own brokerage account and used the funds to trade in numerous short-sell transactions involving Treasury bonds, depleting more than half of the account’s value as of April 25.
Wired $500,000 back to La Madrid
Transferred $1.8 million to several real estate title companies
Used $95,000 towards the purchase of two automobiles
Transferred another $90,000 to a Denver-based car dealership
The court issued an order temporarily enjoining defendants from future violations of the antifraud provisions of the Investment Advisers Act of 1940. The court also issued orders temporarily freezing the assets of the defendants and relief defendants and prohibiting the destruction of documents by the defendants.
The Premium Return Funds, six additional entities managed by Plus Money, Donald Lopez of Denver, Colo., and Palladium Holding Company, an entity formed and controlled by Lopez, are named in the complaint as relief defendants based on their receipt of investor funds.
The Commission’s complaint seeks preliminary and permanent injunctions, return of ill-gotten gains with prejudgment interest, and penalties against the defendants. The complaint also alleges that the defendants transferred significant amounts of investor monies to the relief defendants and seeks the return of those monies. A hearing on whether a preliminary injunction should be issued against the defendants is scheduled for May 14.List your legal jobs on the LawFuel Network