SEC Sues Former Hedge Fund Managers in Massive Ponzi Scheme

//SEC Sues Former Hedge Fund Managers in Massive Ponzi Scheme

SEC Sues Former Hedge Fund Managers in Massive Ponzi Scheme

Florida hedge fund Banyon Investments founder and COO have been named in a SEC lawsuit for their roles in a massive Ponzi scheme

Alleged hedge fund Ponzi schemer Scott Rothstein is flanked in this photo by George Levin on the left, and Howard Gruverman on the right. As head of hedge fund Banyon investment groups, Levin reportedly lost $775 million in Rothstein’s investment program, and has said he’s a victim. But he’s named in a civil lawsuit as having knowledge of the scam. Gruverman is CEO of Edify LLC, a health benefits consultant company that Rothstein is a part-owner of, and was once listed by Rothstein as one of his three best friends.

The SEC announced Tuesday that Florida Hedge Funders George Levin and Frank Preve allegedly raised more than $157 million from 173 investors during a two-year period from 2007 to 2009, and then used those funds to purchase discounted legal settlements that didn’t actually exist from former attorney Scott Rothstein. Rothstein is serving 50 years in prison for carrying out a $1.2 billion Ponzi scheme – with the fictitious settlements – that is considered one of the largest in South Florida history. Read more about How hedge funds got hooked on Ponzi Scheme

The SEC is seeking “disgorgement of ill gotten gains, financial penalties, and permanent injunctive relief against Levin and Preve to enjoin them from future violations of the federal securities laws.” The agency’s investigation into Levin and Preve is ongoing.

The SEC alleged in its complaint that Levin, who ran the now-defunct hedge fund firm Banyon Investments, and Banyon’s chief operating officer Preve misrepresented to investors that they had safeguards in place to protect their money. Instead, they allegedly purchased the settlements without seeing any legal documents or any verification that proceeds from the settlements were in Rothstein’s bank accounts.

The SEC also alleged that Levin and Preve sought new investor money by falsely touting the continued success of their investment strategy, which was to compensate for the money they lost when Rothstein’s scheme started to collapse and when he stopped making payments on prior investments. That led to the closing of their firm.
Banyon Investments declared bankruptcy in December 2009 and the firm claimed in a legal filing that it funneled $775 million to Rothstein.
According to an article in July 2010, Levin, his wife and his firm agreed to sell the firm’s assets to settle with the trustee responsible for paying back investors swindled by Rothstein. In their settlement agreement, the Levins maintained that they did not know that Rothstein was running a Ponzi operation.

Read More:  HFN and SEC


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