Philadelphia woman sentenced to 109 months in prison for $100 million securities fraud scheme | USAO-NJ
NEWARK, NJ — An investment fund manager was sentenced today to 109 months in prison for orchestrating a $100 million securities fraud scheme, U.S. Attorney Philip R. Sellinger announced.
Brenda Smith, 61, of Philadelphia, previously pleaded guilty by videoconference before U.S. District Judge Madeline Cox Arleo to count seven of an indictment charging her with securities fraud. Judge Arleo handed down the sentence today in federal court in Newark.
According to documents filed in this case and statements made in court:
Smith managed and controlled Broad Reach Capital LP, a pooled investment fund/hedge fund that was established in February 2016 and was open to accredited investors with a minimum investment of $1 million.
From February 2016 to August 2019, Smith orchestrated a scheme in which she made false representations to investors and promised that she would invest their funds in particular trading strategies that Broad Reach Capital would have been ideally placed to execute. Smith called these strategies Dividend Capture, VIX Convergence and Opportunistic Trading.
Smith misrepresented the success and performance of Broad Reach Capital to investors and potential investors. She presented Broad Reach Capital as a trade-oriented, highly liquid investment fund with a strong risk management program. Smith distributed written materials about Broad Reach Capital to investors and potential investors that included purported historical performance information, such as claimed annual returns of over 33% in 2017 and positive monthly returns in 2018. In fact, total cash and securities in the Broad Reach Capital bank and brokerage accounts decreased from around December 2016 to June 2019. For example, the written documents claimed that Broad Reach Capital had a yield of 1.76% in February 2018 when in reality Broad Reach Capital’s brokerage accounts had lost about 50% of their value.
To lull investors and entice them to keep investing, Smith provided monthly account statements to investors that falsely showed that their investments were safe and yielding large returns. Smith also falsely stated that she had personally invested in Broad Reach Capital and provided a fictitious account statement to at least one investor.
During the program, Smith raised over $100 million in cash in Broad Reach Capital from approximately 40 investors. At its peak, however, the value of cash and securities in Broad Reach Capital’s bank and brokerage accounts did not exceed approximately $32 million. Instead of investing the money as she had promised, Smith transferred tens of millions of dollars from Broad Reach Capital to entities she controlled for purposes inconsistent with business strategies, including more than about 10 million dollars for mining operations and about 2 million dollars for American Express. credit card bills. When investors requested the redemption of their investments, Smith misappropriated other investors’ funds to pay the requested redemption amounts.
In addition to the prison sentence, Judge Arleo sentenced Smith to three years of probation and ordered him to pay restitution of $47.2 million.
The Philadelphia regional office of the U.S. Securities and Exchange Commission (SEC) had previously filed a civil complaint against Smith for the same behavior.
U.S. Attorney Sellinger credited Special Agents from the FBI Philadelphia Division, under Special Agent in Charge Jacqueline Maguire, and Special Agents from the U.S. Attorney’s Office, under Special Agent in Charge Thomas Mahoney , of the investigation leading to today’s sentencing. . She also thanked the Philadelphia regional office of the US Securities and Exchange Commission, under co-acting regional directors Scott Thompson and Joy G. Thompson, for their assistance.
The government is represented by Assistant U.S. Attorney Osmar J. Benvenuto, Deputy Chief of the Criminal Division of the U.S. Attorney’s Office in Newark.