This content is from: Portfolio

Morning Brief: Hedge Fund Manager Arrested on Ponzi Scheme Charges

Michael Scronic of Westchester County, New York was arrested Thursday morning and charged with one count of securities fraud and one count of wire fraud.

A little-known hedge fund manager has been arrested for allegedly running a $19 million Ponzi scheme through his fund, Scronic Macro Fund, according to an October 5 statement from the U.S. Attorney’s Office for the Southern District of New York. Michael Scronic of Westchester County, New York was arrested Thursday morning and charged with one count of securities fraud and one count of wire fraud, according to the statement. The government accuses Scronic of lying about the performance of his investment fund, and then spending most of this money for personal expenses averaging more than $500,000 a year since 2012. They include monthly rent of $12,275 on his primary residence in Westchester, mortgage payments on a vacation home in Stratton, Vermont, fees for beach and country clubs, and $15,000 per month in miscellaneous items charged to credit cards, the U.S. Attorney’s Office said.

Scronic, a graduate of Stanford University and the University of Chicago’s business school, raised more than $19 million from 45 investors for his fund since April 2010, according to the statement. He told investors his fund made money in all but one of 22 quarters when it fact it lost money in 28 of 29 quarters, the U.S. Attorney’s Office said. The total net loss was about $15.7 million. All along Scronic allegedly reported much higher amounts of assets than he actually had. For example, he allegedly told investors his fund had $21.7 million in assets as of June 30, 2017 when the combined balance of brokerage and bank accounts was $102,376, according to the statement. Scronic faces a maximum sentence of 20 years in prison for each of the two charges.

The Securities and Exchange Commission announced October 5 that it charged Scronic with fraud stemming from “lies to retail investors about the value of their investments in a Ponzi-like scheme.” The regulator said that the balance in his brokerage account was just under $27,500 on June 30.

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Adage Capital Partners more than tripled its stake in Inotek Pharmaceuticals Corp. to 1.5 million shares for a 5.5 percent stake in the clinical-stage biopharmaceutical company, according to a regulatory filing. The Boston-based investor said in the filing that it bought shares of Inotek, which develops therapies to treat glaucoma and other serious eye diseases, for ordinary investment purposes “and not with the purpose nor with the effect of changing or influencing the control or management.” The firm said in the filing that it used a form 13D to disclose its position because it acquired the shares through merger arbitrage and event-driven investment strategies. Using such strategies may mean Adage was not eligible to report the position on a 13G form, according to the filing. On September 12, Inotek announced a merger agreement with Rocket Pharmaceuticals.

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Shares of Netflix surged 5.39 percent to close at $194.39 Thursday after the streaming video company said it would raise subscriber fees by $1 to $2 per month, depending on the tier of service, according to a report from Variety. At the end of the second quarter, at least 87 hedge funds held a position in the stock, according to Goldman Sachs Group.

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Legendary hedge fund manager Michael Steinhardt will appear on a hedge fund panel with Saba Capital Management’s Boaz Weinstein at the first annual Octavian Forum on October 17. The event will be co-hosted by The Octavian Report, founded by Richard Hurowitz, and auction house Sotheby’s. The event’s agenda reads like a mini-SALT wannabe, highlighting speeches and panels involving experts in a variety of fields, including politics and business. Besides Steinhardt, other speakers include chess legend Garry Kasparov, economist Nouriel Roubini, writer Erica Jong, and former Spanish Prime Minister José María Aznar.

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