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Investment Adviser Arrested in $100 Million Securities Fraud Scheme

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the staff of the Ridgewood blog

NEWARK NJ, An investment fund manager was arrested today in connection with an alleged $100 million securities fraud scheme, U.S. Attorney Craig Carpenito announced.

Brenda Smith, 59, of Philadelphia, Pennsylvania, is charged by complaint with four counts of wire fraud and one count of securities fraud. Smith was arrested in Philadelphia and is scheduled to appear this afternoon before U.S. Magistrate Judge Cathy L. Waldor in Newark federal court.

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

From February 2016 to August 2019, Smith allegedly orchestrated a scheme using her investment fund, Broad Reach Capital, in which she lied to investors about the assets and performance of the fund and falsely stated that she would invest their funds in particular trading strategies. Smith collected more than $100 million in investments. Instead of investing the money as she promised, she diverted millions of dollars of investor funds out of Broad Reach Capital for other purposes, including paying other investors. When confronted with redemption requests by several large investors in Broad Reach Capital, Smith failed to honor the redemption requests and lied about the status of their investment and the fund.

In one instance, Smith allegedly induced Victim 1 to invest in Broad Reach Capital, telling Victim 1 that it was a trade-focused investment fund that employed particular trading strategies. Smith provided a one-page summary “tear sheet” about Broad Reach Capital that contained purported historical performance information, including a claim that the fund had a 1.76 percent return in February 2018. In reality, Broad Reach Capital’s brokerage accounts lost approximately 50 percent of their value in February 2018. Smith also told Victim 1 that the assets of Broad Reach Capital were tens of millions of dollars higher than they actually were. Victim 1 invested millions of dollars. Smith did not invest Victim 1’s money in the trading strategies as promised, but instead transferred Victim 1’s money to non-Broad Reach Capital bank accounts that Smith controlled and paid other investors with Victim 1’s money. Victim 1 eventually made a redemption request for more than $46 million. Smith failed to pay any portion of the redemption request, providing a series of shifting false excuses and explanations for the lack of redemption.

The wire fraud counts are each punishable by a maximum of 20 years in prison and a fine of $250,000, or twice the gross amount of gain or loss from the offense, whichever is greater. The securities fraud count is punishable by a maximum of 20 years in prison and a fine of $5 million.

U.S. Attorney Carpenito credited special agents of the FBI Philadelphia Division, under the direction of Special Agent in Charge Michael Harpster, and special agents of the U.S. Attorney’s Office, under the direction of Special Agent in Charge Thomas Mahoney, with the investigation leading to today’s charges. He also thanked the U.S. Securities and Exchange Commission’s Philadelphia Regional Office, under the direction of Director G. Jeffrey Boujoukos, for its assistance.

The government is represented by Senior Trial Counsel Courtney A. Howard of the U.S. Attorney’s Office Economic Crimes Unit.

The charges and allegations in the complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.

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