California Man Pleads Guilty to $5 Million Ponzi Scheme

An Encinitas man recently pled guilty to federal charges that he operated a Ponzi scheme that defrauded investors out of roughly $5 million.  John Clement, 65, entered a guilty plea to a single count of wire fraud, which carries a maximum statutory penalty of twenty years in federal prison, along with up to a $250,000 fine.  The sentencing judge could also order Clement to pay restitution to his victims.  

Starting in August 2008, Clement purported to run a profitable day-trading operation under the name of Edgefund Capital, LLC.  Clement solicited potential investors for his two hedge funds, The Edgefund, LP and the Edge Fund, Ltd., by promising guaranteed monthly returns of 1.5% to 2%.  Investors were assured that downside risk was limited due to Clement's utilization of a 5% stop-loss rule, which theoretically entered an automatic sell order for any security falling five percent below a specified level. Investors were sent fictitious account statements showing inflated returns, when in reality these returns were not being achieved and Clement was instead operating a Ponzi scheme that paid his personal expenses, and also used new investor funds to pay returns and principal redemptions to existing investors.

Clement was also the target of an investigation by the Securities and Exchange Commission, who obtained an emergency injunction in May 2011 to half Clement's ongoing fraud.  The SEC recently obtained a permanent injunction against Clement, permanently enjoining any future violations of federal securities laws, and ordering Clement to pay disgorgement of ill-gotten gains and civil monetary penalties.

Clement is currently scheduled to be sentenced on December 20, 2011, by United States District Judge Irma Gonzalez.

A copy of the SEC Litigation Release is here.

A copy of the SEC Permanent Injunction is here.