The Securities and Exchange Commission ("SEC") today issued an order barring a Connecticut Hedge Fund manager from acting as an investment adviser or broker. Francisco Illarramendi, 42, pled guilty earlier this year in March to operating a Ponzi scheme that defrauded foreign investors of millions of dollars, including the employee pension fund for Petroleos de Venezuela, the state-owned oil company of Venezuela. In the "Order Instituting Administrative Proceedings Pursuant to Section 203(f) of the Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions" released today by the SEC, Illarramendi agreed to a permanent ban on future associations with any broker-dealer, investment adviser, or national rating organization. Illarramendi will be able to reapply in the future, although such reapplication may be conditioned upon any restitution or disgorgement ordered as a result of his fraud.
From 2005 to 2011, Illarramendi was associated with Highview Point Partners, LLC ("Highpoint") and Michael Kenwood Capital Management, LLC ("MKCM"). Both entities were investment advisers to several hedge funds. Illarramendi made repeated false represntations that one of the hedge funds, Short Term Liquidity Fund ("STLF") had at least $275 million in assets and had a history of attractive performance relative to the market. Illarramendi also provided numerous fraudulent documents to investors. Additionally, in response to a 2010 SEC investigation into MKCM, Illarramendi submitted a fictitious asset verification letter to the SEC affirming the existence of $275 million in assets.
Prosecutors have estimated that losses could exceed tens of millions of dollars. Recently, a court-appointed receiver for the two entities announced the recovery of $230 million located in an offshore banking institution. An updated estimation of victim losses has not been issued.
In March 2011, Illarramendi pled guilty before United States District Judge Stefan R. Underhill in Bridgeport, Connecticut, to two counts of wire fraud, one count of securities fraud, one count of investment advisor fraud, and one count of conspiracy to obstruct justice in connection with the SEC investigation. These offenses carry a maximum combined prison sentence of up to seventy years, as well as criminal monetary penalties and restitution to defrauded investors.
Illarramendi, along with Highview and MKCM, were also charged by the SEC with numerous violations of the Investment Advisers Act of 1940 and the Securities Exchange Act of 1934. A copy of the SEC Complaint is here.