An Oregon hedge-fund manager has agreed to plead guilty to charges he raised as much as $50 million from investors in a massive Ponzi scheme. Yusaf Jawed, of Portland, Oregon, pled guilty to seventeen counts of mail fraud and wire fraud in an agreement with prosecutors that will result in a recommended sentence of 6.5 years in prison. While Jawed at one point claimed he managed more than $60 million, the deal calls for Jawed to repay just over $6 million to 10 investors taken from February 2008 and September 2009.
Jawed operated 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. Investors were supplied with account statements and tax returns that purported to show constant profits in investor accounts, and were assured that their funds would be held at prominent institutions such as Lehman Brothers and UBS. In total, Jawed raised at least $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 authorities, 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.
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.
As part of his plea agreement, Jawed is also expected to cooperate with a lawsuit brought by investors against Grifphon's former accounting and law firms. A positive outcome in the lawsuit could be investors' best chance of any recovery, as a federal court previously found that Jawed was penniless, throwing into question whether the restitution obligation is anything more than symbolic.
A copy of the SEC's complaint is here.