Preet Bharara, the United States Attorney for the Southern District of New York, announced the arrest and unsealing of a complaint charging Nicholas Mitsakos with securities and wire fraud in connection with a scheme to induce investments in a hedge fund by misrepresenting the fund’s performance and assets under management. From at least May 2014 through August 2016, Mitsakos fraudulently solicited investments in a hedge fund that he had founded, Matrix Capital (“Matrix”), by distributing marketing materials claiming that Matrix had millions of dollars under management and had achieved outsized returns since 2012. In or about September 2015, one entity (“Victim-1”) invested approximately $2 million with Mitsakos based on these representations. The claims that Mitsakos made to help secure this investment, however, were false. Matrix had no assets under management and its returns were based on a hypothetical stock portfolio that had been retroactively altered on multiple occasions in order to enhance the fund’s supposed performance. And rather than invest Victim-1’s money as promised, Mitsakos misappropriated parts of this money to pay personal expenses and expenses associated with his administration of the fund. Mitsakos surrendered to law enforcement on Thursday, August 11, in Los Angeles and will be presented in the United States District Court for the Central District of California.
In a separate action, the SEC filed civil charges against Mitsakos.
U.S. Attorney Preet Bharara said, “Nicholas Mitsakos, founder of Matrix Capital, allegedly promised huge returns and told would-be investors that he had ‘a little more than $60 million’ in his hedge fund. But as alleged, Mitsakos essentially ran an imaginary portfolio, which just tracked the performance of certain stocks without actually having a financial position in them. Instead, Mitsakos allegedly spent much of his investors’ money on car payments, credit cards, and rent.”
Mitsakos is charged with one count of conspiring to commit securities and wire fraud, one count of securities fraud, and one count of wire fraud. The conspiracy charge carries a maximum term of five years in prison. The securities and wire fraud charges each carry a maximum term of 20 years in prison. The charges also carry a maximum fine of $5 million, or twice the gross gain or loss from the offense. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant United States Attorney Robert Allen is in charge of the prosecution.