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Levy admits diverting $7 million from fund

  Law Center  -   POSTED: 2007/07/25 14:30

A partner in a San Diego hedge fund that allegedly bilked investors out of up to $60 million pleaded guilty in federal court yesterday to tax evasion and conspiracy to commit mail fraud. Paul Henrie Levy, co-manager of Global Money Management before it collapsed in March 2004, reversed his prior plea of not guilty in a hearing before U.S. Magistrate Judge Cathy Ann Bencivengo.

Levy, who was indicted in 2005, is scheduled to be sentenced Oct. 15. He could receive a maximum of eight years in prison on the two charges, said Assistant U.S. Attorney Phil Halpern.

"The saga of Global Money Management demonstrates once again that fraudsters can steal money using e-mails, letters and stock solicitations rather than guns," Halpern said. "We must be vigilant for this type of fraud, which causes so much harm to so many."

Two other people indicted in the case – GMM fund co-manager Marvin Irwin Friedman and bookkeeper Alice Mae Swiderski – previously pleaded guilty and are awaiting sentencing.

In his plea agreement, Levy admitted diverting up to $7 million in GMM investor money to entities he controlled for his own personal use. He also filed false tax returns for the years 2001, 2002 and 2003 that resulted in a tax loss to the government of about $2.3 million, according to court documents.

Beginning in at least 1997, Levy and Friedman solicited investors through word of mouth, referrals from family members and, later, by soliciting institutional investors through referrals from investment banking firms, according to court documents.

Levy and Friedman touted the successful performance of the GMM hedge fund, claiming it was making substantial returns that averaged 25 percent annually. The partners also claimed not to charge any fees for managing the fund but instead to receive a share of profits generated by the GMM fund.

Prosecutors alleged the hedge fund was little more than a Ponzi scheme, in which the two men used new investor funds to pay off longer-term investors in an attempt to induce those individuals to invest more in the fund. The partners also diverted funds to pay their personal expenses and to benefit other corporate entities they controlled.

Global Money Management collapsed in March 2004, shortly after the Securities and Exchange Commission sued GMM, its general partner LF Global Investments and controlling director Friedman for securities fraud.

At the urging of the SEC, a judge froze the partnership's assets and turned GMM over to court-appointed receiver Charles La Bella. At the time, La Bella found less than $50,000 in assets in the partnership, which once purported to control $116 million on behalf of about 200 investors.

In earlier court documents, prosecutors said La Bella traced more than $18 million in investor funds to accounts controlled by Levy, including at least one account in Switzerland.

Halpern said the government now believes it has recovered any money that wasn't "dissipated" by partners Levy and Friedman.

Ronald Krajewski, acting assistant special agent in charge for the San Diego office of the Internal Revenue Service, said the agency, which investigated the case with the Department of Justice, will "aggressively pursue" individuals who take financial advantage of clients and evade their income taxes.

"Investment professionals who have betrayed their clients' trust and placed their own personal monetary gain ahead of their clients' financial well-being will be prosecuted," Krajewski said.


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