Hedge fund manager used postal box to hide $6 million fraud, Feds say

Mon Jun 17, 2013 7:45pm EDT
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By Tom Polansek and Ann Saphir

CHICAGO/SAN FRANCISCO (Reuters) - A North Carolina hedge fund manager used a personal post-office box and forged bank statements to hide his theft of about $6 million over a seven-year period, U.S. regulators and prosecutors said on Monday.

James Shepherd, who ran a commodity fund that traded contracts at CME Group Inc (CME.O: Quote) and IntercontinentalExchange Inc (ICE.N: Quote), was charged with the fraud in federal court in Charlotte on Monday. In a related action, the Commodity Futures Trading Commission sued Shepherd for fraud and misuse of customer funds.

The charges were reminiscent of a larger scam uncovered last year that was perpetrated by Russell Wasendorf Sr., the founder of Peregrine Financial Group. He used similar tools to steal $215 million from clients over nearly 20 years.

Shepherd's alleged swindle lays bare the ongoing challenges of policing the vast hedge fund and commodity pool industry, much of which has come under additional regulation since January through the National Futures Association (NFA) trade group.

Shepherd entered a sealed plea agreement in the criminal case.

"He definitely wants to pay back people who have lost money," his lawyer, John Keating Wiles, told Reuters.

Peregrine last July filed for bankruptcy after the 20-year-long fraud came to light. Wasendorf, 65, is serving a 50-year sentence in federal prison after admitting to stealing from customers and lying to regulators.

After Peregrine's collapse, NFA and other futures regulators put in place a system of electronic confirmations that allows daily checks of the $157 billion or so of customer funds kept at futures brokerages.   Continued...