A Philadelphia hedge fund manager was sentenced to more than nine years in prison for a financial scheme that defrauded roughly 40 investors out of $ 100 million dollars.
Brenda Smith, 61, was sentenced on Wednesday after she previously pleaded guilty to securities fraud charges, the Philadelphia Business Journal reported. She will also serve three years of supervised release and be required to pay $ 47.2 million in restitution.
Smith managed and controlled Broad Reach Capital LP, an investment firm founded in February 2016, her federal indictment says. It was only open to investors who could contribute a minimum of $ 1 million.
The scheme began in February 2016 and lasted until August 2019. Although Smith took more than $ 100 million from investors, the amount in the firm’s brokerage accounts never exceeded $ 32 million.
Smith misrepresented the company to both her investors and those she hoped would send their money.
She told customers their funds were being invested via unique trading strategies that balanced high-yield growth with a robust risk management program. Instead, Smith used millions to pay out other investors and to make a $ 10 million investment in a mineral mining operation. She also used the money to pay off $ 2 million in American Express credit card bills.
Smith created written materials which stated her company had annual returns greater than 33% in 2017 and positive monthly returns in 2018, even though the value of Broad Reach’s brokerage accounts decreased after December 2016.
For the month of February 2018, she reported that Broad Reach’s returns grew 1.76% when the actual amount in the firm’s brokerage accounts shrank by 50%.
To keep her investors from becoming suspicious, Smith sent out fake monthly account statements and created a fake document which made it appear she was personally invested in the firm.
The US Securities Exchange Commission’s Philadelphia office had previously filed a civil complaint against Smith for her conduct.
Michael Tanenbaum contributed to this report.