Posted in: Ponzi Schemes |
Today, on the one-year anniversary of Bernie Madoff’s arrest for securities fraud, former New York hedge fund manager James Nicholson plead guilty to a massive Ponzi scheme of his own.
Prosecutors say Nicholson, who was the former president and sole manager of Westgate Capital Management LLC, falsified documents and misled federal authorities in a scheme that cost his investors more than $133 million.
According to the New York Times, Nicholson’s house of cards started to crumble after Madoff’s arrest. In December of last year investors, who were spooked by Madoff’s scheme, requested cash back from Nicholson. When those investors tried to cash $5 million in checks that Nicholson had issued, those checks bounced.
Nicholson has been in jail since February, since he is unable to pay of his $10 million bail. The government is also trying to recover over $150 million in assets, his houses, and even his New York Jets season tickets. He will be sentenced on April 30, and faces up to 45 years in prison.
After his guilty plea, Nicholson told U.S. District Judge Richard Sullivan that most of his “misrepresentations” - lies to investors - occurred after the collapse of Lehman Brothers in September 2008. However, prosecutors believe the fraud began in 2004.
Nicholson’s Ponzi scheme shared similarities with that of Madoff. He told investors he controlled $900 billion in assets, when in reality he had only had around $50 million. He promised unrealistically high returns on hedge funds, and reported high returns on those funds when their performance was actually much lower.
He also used money from new investors to pay off some old investors, and withdrew money from his customers’ accounts in multiple transactions so as to avoid detection, prosecutors said.
Though Nicholson expressed deep remorse to Judge Sullivan, and victims, during his guilty plea, it is safe to assume that he would have continued with his illegal practice as long as investors were kept in the dark. He created a phony auditor at his firm to cover up Westgate’s improper bookkeeping-he even created a phony office for the auditor, in case federal regulators were suspicious.
In fact, one good thing investors can draw from the Bernie Madoff scandal is that it possibly brought to light similar crimes against investors. If Madoff had not received so much attention last December, perhaps Nicholson gets more time to rip off his customers.
But even though Nicholson came nowhere close to matching Allen Stanford’s $8 billion in alleged fraud, or Madoff’s $65 billion, he was able to harm thousands of investors in just a few years.
