Criminal Justice News

Thursday, September 27, 2012

Hedge Fund CEO Pleads Guilty to Multi-Million-Dollar Investment Fraud

CAMDEN, NJ—The former CEO of the hedge fund management company Osiris Partners LLC admitted today to conspiring with others to defraud investors of more than $4 million, U.S. Attorney Paul J. Fishman announced.

Michael J. Spak, 44, of Chesterfield, New Jersey, pleaded guilty before U.S. District Judge Joseph H. Rodriguez in Camden federal court to an information charging him with conspiracy to commit wire fraud.

According to documents filed in this case and statements made in court:

Spak and his co-conspirators solicited investors to invest in the Osiris Fund, which they pitched to prospective investors as a hedge fund for the “little guys” and “moms and pops.” Over time, more than 75 people invested $12 million in the Osiris Fund. Beginning in January 2010, however, Spak and his co-conspirators at the Osiris Fund began improperly diverting investors’ funds for their own use. In January and February 2010, Spak and his co-conspirators spent $300,000 of investors’ money to purchase a luxury sport-fishing boat called the “Fintastic.” In total, in 2010 and 2011, Spak and his co-conspirators fraudulently diverted more than $4 million. Spak failed to disclose these diverted payments to the Osiris Fund investors, and in the financial statements that they sent to investors, Spak and his co-conspirators continued to characterize these diverted funds as “assets” of the fund.

In April and May 2010, the Osiris Fund incurred trading losses of approximately $4.5 million, about half the value of the fund. Spak and his co-conspirators never disclosed these losses to investors. They instead created false financial statements, which included a fictitious $5 million “asset,” and sent them to investors. Even though this fictitious asset never existed, Spak and his co-conspirators charged investors a three percent management fee to manage it and fraudulently overcharged investors millions of dollars in management fees.

The charge of conspiracy to commit wire fraud is punishable by a maximum potential penalty of 20 years in jail and a $250,00 fine. Sentencing is scheduled for January 9, 2013.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward, for the investigation leading to today’s guilty plea. He also thanked the New Jersey Bureau of Securities, under the direction of Bureau Chief Abbe R. Tiger, for its assistance.

The government is represented by Assistant U.S. Attorneys Shirley U. Emehelu and Christopher J. Kelly of the U.S. Attorney’s Office Economic Crimes Unit in Newark.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch and, with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

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