Financial Services Firm Partner Arrested And Charged In Manhattan Federal Court With $95 Million Scheme To Defraud Investors

Preet Bharara, the United States Attorney for the Southern District of New York, announced the arrest and unsealing of a complaint charging ANDREW CASPERSEN, 39, with securities and wire fraud in connection with a scheme to defraud investors of over $95 million.  From at least July 2015 through March 2016, CASPERSEN, a partner in the New York office of a multinational financial services firm involved in private equity and alternative asset advisory work, fraudulently solicited investments in securities by falsely representing that he had authority to conduct deals on behalf of his employer with another private equity fund, and that investors’ funds would be invested in a secured loan to an investment firm, when in fact no such security existed and no such investments were made, and which funds CASPERSEN converted to his own use without the authorization of his investors.  As a result of the scheme, CASPERSEN converted to his own use approximately $24.6 million from a charitable foundation affiliated with a multinational hedge fund based in New York, and $400,000 from an employee of the hedge fund.  Rather than invest his victims’ funds as promised, CASPERSEN used a portion of the $25 million to trade securities in his personal brokerage account, which funds he largely lost as a result of aggressive options trading.  In addition, shortly before his arrest, CASPERSEN fraudulently attempted to solicit an additional $20 million investment from the same charitable foundation and a $50 million investment from another multinational private equity firm headquartered in New York.  CASPERSEN will be presented today before Magistrate Judge James C. Francis.

In a separate action, the SEC filed civil charges against CASPERSEN.  

U.S. Attorney Preet Bharara said: “Andrew Caspersen, a partner at a major financial advisory firm, allegedly scammed his clients into investing tens of millions in sham private equity investments.  To advance his $95 million fraud scheme, Caspersen allegedly put on a shameful charade – creating fake email addresses, setting up misleading domain names, and inventing fictional financiers.  When confronted by a suspicious client who had invested $25 million, Caspersen had no good answers.  He will now have to answer to federal securities and wire fraud charges.”

According to the allegations in the Complaint unsealed in Manhattan federal court:[1]

The Scheme to Defraud Firm-3

In October 2015, CASPERSEN sent an email to an individual (“Individual-1”)[2], in which CASPERSEN described “a new investment” that he had structured and in which he claimed he was personally investing.  Individual-1 was employed at a multinational hedge fund headquartered in New York (“Firm-3”), and was responsible for evaluating and recommending investments for a charitable foundation affiliated with the fund (the “Foundation”).  Over the course of additional correspondence in the ensuing days, CASPERSEN offered Individual-1 the opportunity to invest in an $80 million credit facility secured by a private equity portfolio, which CASPERSEN’s employer (“Firm-2”) was purportedly creating to facilitate investments in the private equity secondary market by a firm in New York (“Firm-1”).  On or about November 5, 2015, the Foundation wired $24.6 million of its own money and $400,000 of Individual-1’s money into an account designated by CASPERSEN (“Account-1”) for purposes of investment in the special purpose vehicle CASPERSEN had created in connection with this proposed transaction.  Although CASPERSEN had represented to Individual-1 that CASPERSEN had already raised $30 million for this investment opportunity that he had presented to Individual-1, as of the Foundation’s November 5, 2015, investment, Account-1 had only received a total of $2.51 million in incoming wire transfers since the special purpose vehicle was incorporated.

The next day, November 6, 2015, CASPERSEN wired $17.6 million from Account-1 into CASPERSEN’s own personal brokerage account.  Notwithstanding the representations he had made to Individual-1 about what he would do with the Foundation’s investment, CASPERSEN immediately began using the funds to engage in largely unprofitable securities transactions.  As of December 31, 2015, CASPERSEN’s brokerage account had a net loss of approximately $25 million for the year.  In addition, on November 6, 2015, CASPERSEN wired approximately $8 million from Account-1 to a bank account controlled by Firm-2, for the purpose of covering up an earlier unauthorized wire transfer of the same amount CASPERSEN had diverted for his own use from its intended beneficiary, Firm-2.    

On March 1, 2016, CASPERSEN began soliciting Individual-1 for an additional $20 million investment in the same purported deal.  CASPERSEN falsely claimed that he intended to have his own family make an additional $5 million investment.  When Individual-1 raised questions about the purported signatory for the special purpose vehicle (“Individual-3”), CASPERSEN falsely claimed that Individual-3 worked at Firm-1, even though, in reality, no such person worked at Firm-1.  On March 7, 2016, Individual-1 told CASPERSEN that he wanted to speak directly with Individual-3.  In response, CASPERSEN sent an email to Individual-1, as well as to an email address containing both the name of Individual-3 and the name of Individual-3’s firm (the “Email Address”) to set up a conference call for later that day.  Individual-1 later learned that the domain name for the Email Address had been registered on March 7, just twenty minutes after Individual-1 requested a telephone call with Individual-3, and that the domain name for the Email Address was not the same as the domain name associated with the real Firm-1.  Individual-1 also subsequently learned that a representative of Individual-1’s employer had called Firm-1’s New York office and been told that no one with Individual-3’s name worked at Firm-1.

Later on March 7, 2016, Individual-1 spoke by telephone with a person who identified himself as Individual-3.  Individual-3 claimed to be a vice president in the New York office of Firm-1.  During the call, Individual-1 asked Individual-3 for his telephone number, which Individual-3 refused to provide.  After the call, Individual-1 received an email from the Email Address with a telephone number purporting to belong to Individual-3.  Later that day, Individual-1 called CASPERSEN and confronted him with what he had learned about Individual-3 (i.e., the discrepancy between the newly created domain name for the Email Address, Firm-1’s real domain name, and that no one with Individual-3’s name worked at Firm-1).  CASPERSEN responded that he found the information “strange,” and said he would get to the bottom of it.  CASPERSEN called Individual-1 later and confirmed that the domain name of the Email Address had been recently registered, but stated that Individual-3 was actually a former outside administrator for Firm-1 in Guernsey. 

Individual-1 then told CASPERSEN that the Foundation wanted its $25 million investment back, plus interest.  On March 11, 2016, CASPERSEN told Individual-1 that the Foundation would receive the funds back by the end of the month. 

The Foundation ultimately did not invest an additional $20 million with CASPERSEN, but has not received any of the $25 million principal back.

Firm-1, Firm-2, and a private equity firm referenced by CASPERSEN as part of the scheme (“Firm-4”) have confirmed that they had no knowledge of the special purpose vehicle that CASPERSEN had created as part of the scheme, nor did Firm-1, Firm-2, or Firm-4 authorize CASPERSEN to solicit funds on their behalf. 

The Scheme to Defraud Firm-5

Beginning in October 2015, CASPERSEN began soliciting another multinational private equity firm (“Firm-5”) for an investment in a purported security similar to the one he had offered Individual-1 and the Foundation.  In December 2015, when employees of Firm-5 sought to put their counsel in touch with CASPERSEN’s counsel, CASPERSEN put them off.  On March 8, 2016, CASPERSEN sent a promissory note to Firm-5 employees for $50 million with terms nearly identical to those offered the Foundation in November 2015.  The next day, CASPERSEN emailed Firm-5 employees and represented that his employer, Firm-2, had arranged a loan facility, and had asked him and two others who purportedly worked at Firm-1 (“Individual 6” and “Individual 7”) to be monitors. 

As with the scheme to defraud Individual-1 and the Foundation, Firm-1, Firm-2, and Firm-4 confirmed that they had not authorized CASPERSEN to solicit funds from Firm-5 on their behalf, nor did they agree to participate in an offering of $80 million worth of promissory notes.  Firm-1 also neither employed nor was represented by anyone with the names of Individual-6 or Individual-7.

Firm-5 did not ultimately invest $50 million with CASPERSEN. 

As of March 18, 2016, Account-1 (where the Foundation and Individual-1 had wired their $25 million investment) had a balance of approximately $40,000. 

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CASPERSEN is charged with one count of securities fraud and one count of wire fraud. Each count carries a maximum term of 20 years in prison.  The maximum fine on these counts is $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.           

Mr. Bharara praised the work of the Office’s criminal investigators, and thanked the Securities and Exchange Commission for its assistance. 

The charges were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices, and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets; and conducting outreach to the public, victims, financial institutions and other organizations.  Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants.  For more information on the task force, please visit www.StopFraud.gov.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force.  Assistant U.S. Attorney Christine I. Magdo is in charge of the prosecution.  

The allegations contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.