RegulationFebruary 24, 2020

Hedge Fund Manager Gets Nearly 12 Years in Prison for Fraud

Nicholas Genovese pleads guilty to lying about credentials and hiding a criminal background.

Reported by Michael Katz

Hedge fund manager Nicholas Genovese has been sentenced to nearly 12 years in federal prison after pleading guilty to committing securities fraud by convincing investors to entrust him with more than $11 million dollars based on false and misleading information, according to the US Justice Department. He had also concealed the fact that he had prior felony convictions for fraud-related crimes.

According to court records, Genovese began soliciting individuals in 2015 to invest in his New York-based hedge fund Willow Creek. He said he was part of the Genovese family that had owned the Genovese Drug Store chain in the New York area. The chain had been bought out by Eckerd Drugs in 1998 for $492 million, and he told investors he was an heir to the family’s fortune.

He also said he had graduated from Dartmouth College’s Tuck School of Business and that he had been a partner at Goldman Sachs and a portfolio manager at Bear Stearns before creating Willow Creek. However, the Justice Department said that none of these representations was true. Genovese is not related to the family that owned the Genovese Drug Store chain, did not attend the Tuck School of Business, and had never worked for either Goldman Sachs or Bear Stearns. He also failed to tell his investors that he had multiple prior felony convictions for charges that include forgery, identity theft, and grand larceny.

Genovese also falsely claimed that Willow Creek had as many as 60 employees, when it had fewer than 10, and that it had been raking in investment gains of 30% to 40% per year and had as much as $39 billion in assets under management (AUM), when in reality it had less than $10 million.

According to the hedge fund’s private placement memorandum, investors were required to invest a minimum of $1 million each and were told that there would be a 12-month lock-up period during which investors could not withdraw any capital.

Things began to unravel for Genovese when his investors began to ask for their money back. The Justice Department said Genovese avoided returning money to investors, even telling one that he would only return their funds after “the stars have aligned,” otherwise there would be a risk that almost all the money would be lost as a result of the purported impracticalities of unwinding unspecified trading positions. Records show that that Genovese lost approximately $8 million trading in TD Ameritrade accounts between January 2015 and December 2017 and that he used the proceeds of his fraud to purchase various luxuries for himself.

“Genovese brazenly lied to his victims, falsely claiming that he was an heir to a multimillion-dollar fortune, that he had an Ivy League MBA, and that he had served in senior roles at major Wall Street firms,” US Attorney Geoffrey Berman said in a statement. “In reality, Genovese was a repeat offender with nine prior criminal convictions for fraud-related and other crimes. Genovese now faces more than a decade in prison for defrauding his victims.”

In addition to the prison term, Genovese, 54, was sentenced to three years of supervised release and ordered to pay restitution to his victims in the amount of more than $11.2 million in addition to forfeiture of the proceeds of his crime.