The Securities and Exchange Commission ("SEC") has filed civil fraud charges against an Oregon fund manager it claims operated a $37 million Ponzi scheme. Yusaf Jawed, 44, was charged with multiple violations of federal securities laws in connection with his use of various hedge funds to defraud over 100 investors. In its complaint, the SEC is seeking injunctive relief, civil monetary penalties, and disgorgement of ill-gotten gains with prejudgment interest.
Jawed controlled Grifphon Asset Management, LLC ("GAM") and Grifphon Holdings, LLC ("GH"), which served as the advisers to numerous hedge funds created and managed by Jawed, including Gripfhon Alpha Fund, L.P. ("Alpha") and Grifphon Iota Fund, L.P. Investors were told through private placement memoranda that the funds experienced annual returns ranging from 12.8% to 132.5% from 2002-2008 through an investment strategy comprised of holdings in publicly-traded securities, private equities, biotech companies, foreign currencies, and commodities. Additionally, investors were assured that their funds would be held at prominent institutions such as Lehman Brothers and UBS. In total, Jawed raised more than $37 million from over 100 investors all over the United States.
However, little, if any, of the claims made to investors were true. According to the SEC, Jawed misappropriated millions of dollars in investor funds for his personal use, which included luxury vacations, lavish meals, and the payment of nearly $60,000 to settle a sexual harassment lawsuit. Additionally, Jawed used investor funds as the source of fictitious interest payments designed to lend an aura of legitimacy to the scheme. Indeed, investors were supplied with account statements and tax returns that purported to show constant profits in investor accounts.
When two bookkeepers retained by Jawed raised questions concerning the reconciliation of company books and record, Jawed devised an elaborate scheme to create the appearance of value in the funds by providing fictitious records showing evidence of assets from companies Jawed had secretly formed and maintained control over.
Additionally, when the scheme appeared on the verge of collapse in 2008, Jawed hatched a scheme with the help of Robert Custis, an attorney. The two began telling investors that a third party would soon purchase the funds' assets, and investors would soon be reimbursed for their investment at a healthy profit. This pattern of deception lasted an additional two years with the use of various excuses such as the time zone difference of the banks, "dotting I's and crossing T's," and confidentiality problems. However, this third-party purchaser was none other than an entity created and controlled by Jawed. For his role in the scheme, Custis was also charged by the SEC.
A copy of the SEC's complaint is here.