The Securities and Exchange Commission today charged a Chula Vista, Calif. resident and two entities he controls for operating a Ponzi-like scheme through five hedge funds.
The SEC alleges that Moises Pacheco, Advanced Money Management, Inc. (AMM), and Business Development & Consulting Co. (BD&C) raised $14.7 million from more than 200 investors over a 3½-year period, acting as investment advisers to the five self-described hedge funds — AP Premium Value Funds I through IV and Capital Partnership Group.
According to the SEC’s complaint, Pacheco told investors that he had developed a lucrative investment strategy involving the purchase and sale of covered call options, and that the hedge funds exclusively relied upon this strategy to generate trading profits ranging from 30 percent to 48 percent per year. In reality, Pacheco did not generate the returns he claimed to have made, and instead used investor principal to pay purported returns until the scheme collapsed.
“Pacheco disseminated monthly statements reflecting purported profits and trading activity, but providing little detail about how those returns were generated,” said Rosalind Tyson, Director of the SEC’s Los Angeles Regional Office. “These investors were principally solicited through word-of-mouth, which serves as a reminder to beware of opaque investment opportunities that promise unusually high payoffs even if it’s a referral coming from family or friends.”
According to the SEC’s complaint, filed in U.S. District Court for the Southern District of California, the hedge funds generated trading profits of only about $367,000, but paid investors purported returns of more than $9.7 million. The SEC alleges that the defendants thus operated a Ponzi-like scheme and further misused investor principal by transferring their money to Pacheco, entities under his control, or numerous third parties for reasons having nothing to do with the purported trading.
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