New Haven Man Admits Operating Illegal Gambling Business

The United States Attorney for the District of Connecticut announced that Michael Pepe, 33, of North Haven, pleaded guilty today before United States Magistrate Judge Thomas P. Smith in Hartford to two counts of operating an illegal gambling business.

According to court documents and statements made in court, in May 2012, a federal grand jury returned an indictment charging Pepe and 19 other individuals, including alleged associates of the Gambino organized crime family, with various federal offenses related to their involvement in an illegal Internet sports bookmaking operation and illegal card gambling clubs in Stamford and Hamden. The investigation, which included the use of court-authorized wiretaps, revealed that Pepe served as the master agent for his Stamford-based co-defendants’ gambling operations in the greater New Haven area. In that capacity, Pepe oversaw bookmaking activities, coordinated the collection of monetary losses from various agents (“bookies”), and provided a portion of those illegal proceeds to a co-defendant. Pepe also was involved in the operation of an illegal card gambling club at 2965 State Street in Hamden, where a house percentage, commonly referred to as a “rake,” was collected from every hand played.

As part of his plea agreement, Pepe has agreed to forfeit $100,000.

Pepe is scheduled to be sentenced by United States District Judge Vanessa L. Bryant in Hartford on October 29, 2012, at which time Pepe faces a maximum term of imprisonment of five years and a fine of up to $250,000 on each count of conviction.

The matter is being investigated by the FBI Fairfield County Organized Crime Task Force, the Internal Revenue Service-Criminal Investigation, the Stamford Police Department, the Bridgeport Police Department, and the Connecticut State Police. This case is being prosecuted by Assistant United States Attorneys Hal Chen and Peter Jongbloed.

New Haven Top Stories: Orange Resident Admits Operating Multi-Million-Dollar Ponzi Scheme

David B. Fein, United States Attorney for the District of Connecticut, and Kimberly K. Mertz, Special Agent in Charge of the Federal Bureau of Investigation, announced that GREGORY VIOLA, 59, of Orange, waived his right to indictment and pleaded guilty today before United States District Judge Vanessa L. Bryant in Hartford to two counts of mail fraud stemming from his operation of a Ponzi scheme that defrauded more than 50 investors of a total of more than $2.5 million.

“This defendant stole millions of dollars from more than 50 victim investors,” stated U.S. Attorney Fein. “This case serves as another reminder that the investing public must be rigorous in its due diligence when considering whether and where to place investment and retirement funds. I commend the FBI, the Stamford Police and the Connecticut Department of Banking, all members of our Connecticut Securities, Commodities and Investor Fraud Task Force, for bringing this defendant to justice.”

According to court documents and statements made in court, VIOLA, who was not a licensed investment adviser, operated an investment business in Orange, Conn. From approximately 2007 to July 2011, VIOLA engaged in a scheme to defraud investors who had provided him with investment funds. As part of the scheme, VIOLA used funds obtained from investors to make payments to earlier investors. In order to prevent his investors from becoming aware that he was using new investor funds to make returns to older investors, VIOLA created and mailed fraudulent online account statements that falsely portrayed the value of investment accounts.

As of May 2011, VIOLA falsely represented to victim investors that they had more than $10 million on account. In truth, $10 million in funds did not exist, and the funds that did exist were not fully invested in online trading accounts but were commingled with funds in VIOLA’s own personal bank accounts. In addition to paying earlier investors with invested funds, VIOLA also used invested funds to pay personal expenses, including his mortgage.

When he is sentenced, VIOLA faces a maximum term of imprisonment of 40 years, a maximum fine of more than $5 million, and an order of restitution.

VIOLA was arrested on August 11, 2011.

This matter is being investigated by the Federal Bureau of Investigation with the assistance of the Stamford Police Department and the Connecticut Department of Banking. This case is being prosecuted by Senior Litigation Counsel Richard J. Schechter, with the assistance of Victim-Witness Coordinator, Linda Corraro.

U.S. Attorney Fein and FBI Special Agent in Charge Mertz stated that the investigation is ongoing and asked individuals who believe they may be a victim of this scheme, and have not already been in contact with the FBI, to contact FBI Special Agent Wendy Bowersox at (203) 777-6311.

In December 2010, the U.S. Attorney’s Office and several law enforcement and regulatory partners announced the formation of the Connecticut Securities, Commodities and Investor Fraud Task Force, which is investigating matters relating to insider trading, market manipulation, Ponzi schemes, investor fraud, financial statement fraud, violations of the Foreign Corrupt Practices Act, and embezzlement. The Task Force includes representatives from the U.S. Attorney’s Office; Federal Bureau of Investigation; Internal Revenue Service—Criminal Investigation; U.S. Secret Service; U.S. Postal Inspection Service; U.S. Department of Justice’s Criminal Division, Fraud Section and Antitrust Division; U.S. Securities and Exchange Commission (SEC); U.S. Commodity Futures Trading Commission (CFTC); Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP); Office of the Chief State’s Attorney; State of Connecticut Department of Banking; Greenwich Police Department and Stamford Police Department.

Citizens are encouraged to report any financial fraud schemes by calling, toll free, 855-236-9740, or by sending an e-mail to ctsecuritiesfraud@ic.fbi.gov.

This case was brought in coordination with the President’s Financial Fraud Enforcement Task Force, which was established to wage an aggressive and coordinated 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.

For more information on the task force, please visit StopFraud.gov.

Haitian Citizen Sentenced to 13 Months in Federal Prison for Operating Investment Fraud Scheme

David B. Fein, United States Attorney for the District of Connecticut, today announced that PIERRE C. ARMAND, 77, of Bridgeport, formerly of Ridgefield Park, New Jersey, was sentenced yesterday, June 27, by Chief United States District Judge Alvin W. Thompson in Hartford to 13 months of imprisonment, followed by three years of supervised release, for defrauding several investors of more than $380,000.

According to court documents and statements made in court, in 2003, ARMAND established United World Holding Company, LLC (“World Holding”), a licensed domestic limited liability company in the State of Connecticut. ARMAND also opened a bank account in the company’s name. Between 2003 and 2009, ARMAND engaged in a scheme to defraud investors by misrepresenting to them that funds provided to him and World Holding would be used by World Holding for the construction of a building project near Dulles Airport in Virginia and for identified costs relating to that project, to purchase identified buildings in Connecticut, or for investment in other specified projects. However, ARMAND used a material portion of the invested funds for other purposes, including payments to the Alliance for the Progress of Haiti, for travel to Haiti, for other projects, and for payments to previous investors, family members and himself.

Judge Thompson ordered ARMAND to pay restitution to his victims in the total amount of $387,777.

On December 20, 2010, ARMAND pleaded guilty to one count of wire fraud.

ARMAND is a citizen of Haiti and a permanent resident alien of the United States.

This matter was investigated by the Federal Bureau of Investigation and was prosecuted by Assistant United States Attorney Christopher W. Schmeisser.

In December 2010, the U.S. Attorney’s Office and several law enforcement and regulatory partners announced the formation of the Connecticut Securities, Commodities and Investor Fraud Task Force, which is investigating matters relating to insider trading, market manipulation, Ponzi schemes, investor fraud, financial statement fraud, violations of the Foreign Corrupt Practices Act, and embezzlement. The Task Force includes representatives from the U.S. Attorney’s Office; Federal Bureau of Investigation; Internal Revenue Service—Criminal Investigation; U.S. Secret Service; U.S. Postal Inspection Service; U.S. Department of Justice’s Criminal Division, Fraud Section and Antitrust Division; U.S. Securities and Exchange Commission (SEC); U.S. Commodity Futures Trading Commission (CFTC); Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP); Office of the Chief State’s Attorney; State of Connecticut Department of Banking; Greenwich Police Department and Stamford Police Department.

Citizens are encouraged to report any financial fraud schemes by calling, toll free, 855-236-9740, or by sending an e-mail to ctsecuritiesfraud@ic.fbi.gov.

Connecticut Man Sentenced to 10 Years in Federal Prison for Operating $100 Million Ponzi Scheme

David B. Fein, United States Attorney for the District of Connecticut, announced that MICHAEL S. GOLDBERG, 40, was sentenced today by United States District Judge Robert N. Chatigny in Hartford to 120 months of imprisonment, followed by three years of supervised release, for operating a $100 million “Ponzi” scheme that defrauded investors of more than $30 million over an approximately 12-year period.

“As a result of this defendant’s decade-long fraud scheme, many victims lost their homes, retirement security, or college savings for their children,” stated U.S. Attorney Fein. “Despite the best efforts of the FBI and the receiver who has been appointed by the court to recover funds, it is unlikely that most of these victims will ever be made whole. The lengthy prison term imposed today is an appropriate one for an individual who caused financial misery for so many, and should deter others from seeking to prey upon innocent investors.”

According to court documents and statements made in court, from approximately 1997 to November 2009, Goldberg, formerly of Wethersfield, devised and executed a scheme to defraud numerous investors by soliciting millions of dollars of funds under false pretenses, failing to invest the investors’ funds as promised, paying existing investors with new investors’ money, and misappropriating and converting investors’ funds to Goldberg’s own benefit and the benefit of others without the knowledge or authorization of the investors. Initially, Goldberg transacted with investors in his own name. Beginning in September 2005, Goldberg received investments through Michael S. Goldberg, LLC, which at times did business as Acquisitions Unlimited Group.

Goldberg’s scheme to defraud investors involved principally two different types of misrepresentations. First, Goldberg solicited individuals to invest money in “diamond contracts.” In order to induce individuals to invest money, Goldberg represented that he would use investors’ money to purchase diamonds at extremely low prices from vendors in New York City, and that he would then resell those diamonds immediately at a substantial profit. Goldberg represented that the profits from the resale of the diamonds would enable him to pay investors a 20 to 25 percent return on investment every 60 to 90 days.

However, the vast majority of Goldberg’s fraud involved his solicitation of individuals and organizations to invest money in the purchase of distressed assets from JP Morgan Chase Bank (“Chase”). Goldberg falsely represented to potential investors in these “Chase asset deals” that Chase had granted him a contractual right to purchase foreclosed and seized business assets from a Chase Foreclosure Manifest, which he would then resell in prearranged transactions to large, well-known corporations. Goldberg represented that his purchase and resale of these foreclosed assets would enable him to pay investors a return on capital of up to 20 percent in a short period of time, typically 90 days. In addition, Goldberg represented that Chase would refund the purchase price of any asset that could not be resold, and that therefore there was no risk to the investor that any principal investment would be lost.

In order to induce individuals to invest in both diamond contracts and Chase asset deals, Goldberg typically drafted and entered into a “Business Investment Agreement Form” with each investor. In these forms, Goldberg set out the terms of the investment, including the amount of the return on capital and the date the return was to be paid. In many of the agreements, Goldberg indicated that he would be responsible for the payment of all taxes, and also included language explaining the risk-free nature of the investment.

As part of his scheme to defraud the investors, Goldberg also compensated other individuals (“feeders”) for locating new investors, primarily in Chase asset deals, through the payment of a “finder’s fee.”

On September 13, 2010, Goldberg pleaded guilty to three counts of wire fraud stemming from the scheme. In pleading guilty, Goldberg admitted that each and every one of his representations were false. Aside from a brief period in 1997, he did not purchase diamonds in New York City or any other location; he did not have any relationship with Chase; he did not purchase any foreclosed and seized assets from Chase; nor did he resell any foreclosed and seized assets. Goldberg paid the promised returns to existing investors with funds he received from new investors or reinvested funds. When an investor questioned Goldberg about his business relationships, either with Chase or with any other company, he often created false documents and other items to induce investors to believe that his business relationships were legitimate, including inventories and/or manifests, contracts, business checks, bank statements, business cards, and company identification cards. Goldberg also created domain names in the names of actual companies, including Chase, that would be listed on false documents in case an investor attempted to verify the authenticity of the documents. In addition, Goldberg opened actual bank accounts in the names of the companies to whom he purported to be selling foreclosed business assets, without the permission of those companies, that could also be used to create the false impression that he had a business relationship with the companies.

Through this scheme, Goldberg induced more than 350 individuals to invest more than $100 million in diamond contracts and Chase asset deals. Investors have lost a total of more than $30 million as a result of the scheme.

Goldberg is involved in two Chapter 7 bankruptcy proceedings that are currently pending in the U.S. Bankruptcy Court in Hartford. James Berman of the law firm of Zeisler and Zeisler, P.C. has been appointed as bankruptcy trustee for the purpose of paying the creditors of the bankruptcy estate pursuant to orders of the U.S. Bankruptcy Court.

Today, Judge Chatigny ordered Goldberg to pay restitution in the amount of $31,023,035.40. In order to assist the government and the court in administering this restitution order, Judge Chatigny appointed James Berman to serve as temporary receiver. The receiver will identify the victims of Goldberg’s criminal conduct and their respective losses from the scheme, pursue and recover all restitution funds from sources he identifies, and propose to the court a plan for distribution of the restitution.

Goldberg has been released on a $1 million bond since his arrest on November 23, 2009. He was ordered to report to a facility to be designated by the federal Bureau of Prisons on July 18, 2011.

This matter is being investigated by the Federal Bureau of Investigation and is being prosecuted by Assistant United States Attorney David E. Novick.

In December 2010, the U.S. Attorney’s Office and several law enforcement and regulatory partners announced the formation of the Connecticut Securities, Commodities, and Investor Fraud Task Force, which is investigating matters relating to insider trading, market manipulation, Ponzi schemes, investor fraud, financial statement fraud, violations of the Foreign Corrupt Practices Act, and embezzlement. The task force includes representatives from the U.S. Attorney’s Office; Federal Bureau of Investigation; Internal Revenue Service - Criminal Investigation; U.S. Secret Service; U.S. Postal Inspection Service; U.S. Department of Justice’s Criminal Division, Fraud Section and Antitrust Division; U.S. Securities and Exchange Commission (SEC); U.S. Commodity Futures Trading Commission (CFTC); Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP); Office of the Chief State’s Attorney; State of Connecticut Department of Banking; Greenwich Police Department; and Stamford Police Department.

The Connecticut Securities, Commodities, and Investor Fraud Task Force is an investigative arm of the President’s Financial Fraud Enforcement Task Force, which is a coordinated 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. For more information on the task force, visit www.StopFraud.gov.

Citizens are encouraged to report any financial fraud schemes by calling, toll free, 855-236-9740, or by sending an e-mail to ctsecuritiesfraud@ic.fbi.gov.

Venezuelan Accountant Admits Conspiring to Obstruct SEC Investigation of Connecticut Hedge Fund Adviser

David B. Fein, United States Attorney for the District of Connecticut, announced that JUAN CARLOS GUILLEN ZERPA, 44, a citizen of Venezuela, pleaded guilty today before United States District Judge Stefan R. Underhill in Bridgeport to one count of conspiracy to obstruct an official proceeding of the U.S. Securities and Exchange Commission (SEC).

“The U.S. Attorney’s Office, FBI and our Connecticut Securities, Commodities, and Investor Fraud Task Force partners will pursue aggressively individuals who attempt to obstruct the SEC and its critically important mission of protecting investors and the integrity of American capital markets,” stated U.S. Attorney Fein.

According to court documents and statements made in court, Francisco Illarramendi, of New Canaan, Connecticut, acted as an investment adviser to certain hedge funds. In approximately 2006, one hedge fund he advised lost millions of dollars of the money he was charged with investing. Rather than disclose to his investors the truth about the losses incurred, Illarramendi intentionally chose to conceal this information by engaging in a long-running scheme to defraud and mislead his investors, creditors, and the SEC to prevent the truth about the losses from being discovered. As part of the scheme, Illarramendi and others created fraudulent documents, including a fictitious asset verification letter falsely representing that one of the hedge funds, the Short Term Liquidity Fund (STLF), had at least $275 million in credits as a result of outstanding loans, when Illarramendi and others knew it did not have any such credits.

GUILLEN is a resident and citizen of Venezuela who was the managing partner of a Venezuelan accounting firm associated with a major international accounting firm. In late 2010, GUILLEN agreed to prepare the asset verification letter that would falsely indicate that the STLF had made outstanding loans to Venezuelan companies. A co-conspirator then worked with other persons to create a fraudulent list of loans and to incorporate this list in the asset verification letter to be signed by GUILLEN.

In approximately January 2011, GUILLEN executed the false asset verification letter and sent it by e-mail to Illarramendi. Thereafter, GUILLEN learned that the false asset verification letter had been supplied to the U.S. Securities and Exchange Commission, and that the SEC had initiated a civil action against Illarramendi and others (SEC v. Illarramendi, et al., 3:11-CV-00078). In an effort to deceive and mislead the SEC and to prevent the SEC from learning during the civil action that the asset verification letter was false, GUILLEN, Illarramendi and others sought to create fraudulent documentation to falsely support the information contained in the letter. GUILLEN also participated in a telephone call with representatives of the SEC in January 2011 in which he intentionally misrepresented that the assertions in the asset verification letter about the existence of the hedge funds’ assets were true, when he knew they were false.

GUILLEN expected to receive approximately $1 million for his willingness to sign the false asset verification letter. As partial payment for GUILLEN’s services in this conspiracy, a co-conspirator caused $250,000 to be transferred to a third party for the benefit of GUILLEN.

Judge Underhill has scheduled sentencing for July 22, 2011, at which time GUILLEN faces a maximum term of imprisonment of 20 years and a fine of up to approximately $2.5 million. GUILLEN also has agreed to forfeit $250,000 to the government.

GUILLEN has been detained since his arrest by FBI special agents on March 3, 2011, in Florida. Following his guilty plea today, GUILLEN was released into home confinement under electronic monitoring after he posted a bond in the amount of $1.35 million, which is secured by $550,000 in cash and real property. GUILLEN will reside in an apartment in Miami, Florida while awaiting sentencing.

On March 7, 2011, Illarramendi waived his right to indictment and pleaded guilty to two counts of wire fraud, one count of securities fraud, one count of investment adviser fraud, and one count of conspiracy to obstruct justice, to obstruct an official proceeding and to defraud the SEC. He awaits sentencing.

This matter is being investigated by the Federal Bureau of Investigation and is being prosecuted by Senior Litigation Counsel Richard J. Schechter and Assistant U.S. Attorney Paul A. Murphy.

U.S. Attorney Fein also acknowledged the substantial assistance provided by the U.S. Attorney’s Office for the Southern District of Florida.

In December 2010, the U.S. Attorney’s Office and several law enforcement and regulatory partners announced the formation of the Connecticut Securities, Commodities, and Investor Fraud Task Force, which is investigating matters relating to insider trading, market manipulation, Ponzi schemes, investor fraud, financial statement fraud, violations of the Foreign Corrupt Practices Act, and embezzlement. The task force includes representatives from the U.S. Attorney’s Office; Federal Bureau of Investigation; Internal Revenue Service - Criminal Investigation; U.S. Secret Service; U.S. Postal Inspection Service; U.S. Department of Justice’s Criminal Division, Fraud Section and Antitrust Division; U.S. Securities and Exchange Commission (SEC); U.S. Commodity Futures Trading Commission (CFTC); Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP); Office of the Chief State’s Attorney; State of Connecticut Department of Banking; Greenwich Police Department and Stamford Police Department.

Citizens are encouraged to report any financial fraud schemes by calling, toll free, 855-236-9740, or by sending an e-mail to ctsecuritiesfraud@ic.fbi.gov.

This case was brought in coordination with the President’s Financial Fraud Enforcement Task Force, which was established to wage an aggressive and coordinated 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.

For more information on the task force, please visit StopFraud.gov.

Connecticut Hedge Fund Adviser Admits Running Massive Ponzi Scheme

Two Others Charged in Conspiracy, Hundreds of Millions of Dollars Potentially Lost

David B. Fein, United States Attorney for the District of Connecticut, and Kimberly K. Mertz, Special Agent in Charge of the New Haven Division of the Federal Bureau of Investigation, today announced that three men have been charged with various offenses stemming from a scheme to defraud investors and creditors of Fairfield County hedge funds managed by one of the defendants, FRANCISCO ILLARRAMENDI, 42, of New Canaan, Connecticut. As a result of the scheme, the investors and creditors of ILLARRAMENDI’s funds face potential losses of hundreds of millions of dollars.

Today, ILLARRAMENDI waived his right to indictment and pleaded guilty before United States District Judge Stefan R. Underhill in Bridgeport, Connecticut, to two counts of wire fraud, one count of securities fraud, one count of investment advisor fraud, and one count of conspiracy to obstruct justice, to obstruct an official proceeding, and to defraud the U.S. Securities and Exchange Commission (“SEC”).

On Thursday, March 3, special agents from the New Haven and Miami Divisions of the FBI arrested JUAN CARLOS GUILLEN ZERPA, 43, and JUAN CARLOS HORNA NAPOLITANO, 40, in Florida on federal criminal complaints charging each with engaging in a conspiracy to obstruct justice, to obstruct an official proceeding, and to defraud the SEC. GUILLEN is an accountant and a citizen of Venezuela, and HORNA is a Venezuelan citizen living in Pembroke Pines, Florida.

According to court documents and statements made in court, ILLARRAMENDI acted as an investment adviser to certain hedge funds. In approximately 2006, one hedge fund he advised lost millions of dollars of the money he was charged with investing. Rather than disclose to his investors the truth about the losses incurred, ILLARRAMENDI intentionally chose to conceal this information by engaging in a scheme to defraud and mislead his investors and creditors to prevent the truth about the losses from being discovered. As a result of this scheme, the hedge funds and related entities managed and advised by ILLARRAMENDI currently have outstanding liabilities that greatly exceed the true value of their assets.

“This investigation has revealed that Francisco Illarramendi operated a massive Ponzi scheme that has defrauded foreign investors of hundreds of millions of dollars,” stated U.S. Attorney Fein. “While the precise dollar losses will not be known for some time, based on this fast-moving investigation, we believe this case represents the largest white-collar prosecution ever brought by this office. I want to commend the FBI and the SEC for their forceful pursuit of this fraud, and for their partnership in the Connecticut Securities, Commodities and Investor Fraud Task Force, which is actively investigating this and other financial fraud schemes.”

“This investigation should serve as fair warning to those, whether in Connecticut, elsewhere in the United States, or overseas, who would attempt to victimize an increasing number of American and foreign investors,” stated FBI Special Agent in Charge Mertz. “The Connecticut Securities, Commodities, and Investor Fraud Task Force will continue to aggressively investigate these criminals and protect the rights of the investing public.”

From approximately 2006 to February 2011, ILLARRAMENDI engaged in a scheme to defraud his investors, creditors, and the SEC by creating fraudulent documents, including a bogus debt instrument and a phony letter purporting to have been issued by an investment bank, as well as a fictitious asset verification letter falsely representing that one of the hedge funds, the Short Term Liquidity Fund (“STLF”), had at least $275 million in credits as a result of outstanding loans, when ILLARRAMENDI and others knew it did not have any such credits. In addition, ILLARRAMENDI misled investors, creditors, and the SEC about the true performance of the funds, the assets under management by the funds, and the transactions being conducted by the funds and related entities.

In pleading guilty, ILLARRAMENDI admitted that he used money provided by new investors to the funds to pay out the returns he promised to earlier investors, created fraudulent and misleading documents related to the funds’ assets, made false representations to his investors and creditors in an effort to obtain new investments from them and to prevent them from seeking to liquidate their investments, improperly commingled the investments in each individual hedge fund with investments in the other hedge funds, and engaged in transactions that were not in the best interests of the funds and agreed to pay kickbacks to persons connected with those transactions.

For example, on one occasion in approximately 2008, ILLARRAMENDI created a fraudulent letter that purported to be a representation by an investment bank that assets of the funds and related entities were segregated from one another at the investment bank. ILLARRAMENDI created the letter by using the letterhead of the investment bank. Today, ILLARRAMENDI admitted that this document, which he sent from Connecticut to numerous foreign investors, was false. Also in 2008, ILLARRAMENDI sent an e-mail to a creditor attaching a bogus debt instrument, which purported to be a Credit Linked Note issued by the same investment bank with a face value of $30 million. This document, too, was fabricated by ILLARRAMENDI.

In addition, in 2010, ILLARRAMENDI used approximately $53 million from two funds he managed and controlled by transferring the money to entities affiliated with the Michael Kenwood Group, LLC (“MK Group”), an entity that he also controlled, without disclosing the use of this money to all of the investors. Thereafter, in an effort to generate a sufficient return to fill the hole in the funds’ assets, ILLARRAMENDI used the approximately $53 million to invest in private equity companies. The investments were made in the name of entities affiliated with the MK Group, and not in the name of the funds.

Beginning in 2010, the SEC sought information and documentation from ILLARRAMENDI and the MK Group. As part of its enforcement authority, the SEC served a subpoena for records upon, among others, MK Group. In December 2010 and January 2011, the SEC conducted an enforcement-directed review of MK Group and related entities as part of its official enforcement investigation. On January 14, 2011, the SEC filed a civil action (SEC v. Illarramendi, et al., 3:11-CV-00078), seeking, among other things, to enjoin ILLARRAMENDI and entities related to MK Group from violating the federal securities laws and to submit an accounting of investor funds. Subsequent to the filing of the SEC civil action, U.S. District Judge Janet Bond Arterton appointed, and sought input from, business advisers and a receiver to ascertain the assets and liabilities of the hedge funds affiliated with MK Group, among other tasks.

In connection with the SEC investigation, ILLARRAMENDI, GUILLEN, and HORNA allegedly conspired to obstruct the SEC and the filed court action. As set forth in court documents, with the assistance of GUILLEN and HORNA, ILLARRAMENDI gave the SEC a fictitious asset verification letter. That document represented that STLF had at least $275 million in credits as a result of outstanding loans to various companies. ILLARRAMENDI has admitted that this representation was false: STLF had not made those loans and was not owed that money. ILLARRAMENDI has admitted that he agreed to pay GUILLEN and HORNA more than $3 million for fabricating the letter and creating false support for the $275 million in loans. It is alleged that on January 24, 2011, $1 million was wired from a Swiss bank account to an account allegedly associated with HORNA. Court documents reveal consensual recorded telephone calls and other communications in which GUILLEN and HORNA allegedly agree to create documentation so that the companies that purportedly owe the money would support the story if contacted by the SEC. Further, it is alleged that, in January 2010, GUILLEN personally spoke to the SEC, told them that he had been asked to verify the existence of the loan portfolio, and reported that he had spoken to all of the companies and had begun receiving confirmation from them. In pleading guilty, ILLARRAMENDI admitted that he and others conspired to obstruct the SEC investigation and civil court proceedings by creating and fraudulently attempting to substantiate a list of fictitious assets.

When he is sentenced, ILLARRAMENDI faces a maximum term of imprisonment of 70 years, fines, restitution for the full amount of the losses suffered by investors and creditors, and forfeiture of assets. A sentencing date has not been scheduled.

GUILLEN and HORNA are each charged with one count of conspiracy and one count of obstruction of an official proceeding. They are both detained. If convicted of the charges in the criminal complaint, GUILLEN and HORNA each faces a maximum term of imprisonment of 25 years.

U.S. Attorney Fein stressed that a complaint is only a charge and is not evidence of guilt. Charges are only allegations, and each defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt.

This matter is being investigated by the Federal Bureau of Investigation with the assistance of the U.S. Securities and Exchange Commission, Boston Regional Office.

This case is being prosecuted by Senior Litigation Counsel Richard J. Schechter and Assistant U.S. Attorney Paul A. Murphy.

U.S. Attorney Fein also acknowledged the substantial assistance provided by the U.S. Attorney’s Office for the Southern District of Florida.

In December 2010, the U.S. Attorney’s Office and several law enforcement and regulatory partners announced the formation of the Connecticut Securities, Commodities, and Investor Fraud Task Force, which is investigating matters relating to insider trading, market manipulation, Ponzi schemes, investor fraud, financial statement fraud, violations of the Foreign Corrupt Practices Act, and embezzlement. The task force includes representatives from the U.S. Attorney’s Office; Federal Bureau of Investigation; Internal Revenue Service - Criminal Investigation; U.S. Secret Service; U.S. Postal Inspection Service; U.S. Department of Justice’s Criminal Division, Fraud Section and Antitrust Division; U.S. Securities and Exchange Commission (SEC); U.S. Commodity Futures Trading Commission (CFTC); Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP); Office of the Chief State’s Attorney; State of Connecticut Department of Banking; Greenwich Police Department; and Stamford Police Department.

Citizens are encouraged to report any financial fraud schemes by calling the FBI toll free, 855-236-9740, or by sending an e-mail to ctsecuritiesfraud@ic.fbi.gov.

This case was brought in coordination with the President’s Financial Fraud Enforcement Task Force, which was established to wage an aggressive and coordinated 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.

For more information on the task force, please visit StopFraud.gov.