January 18, 2017 / 5:32 PM / a year ago

UPDATE 1-Boston-area hedge fund accused of fraud, misuse of investors' money

(Adds details about hedge fund)

By Tim McLaughlin

BOSTON, Jan 18 (Reuters) - A small Boston-area hedge fund operation on Wednesday was accused of running a Ponzi scheme that included spending investor money on liquor, luxury hotels and specialty cars, according to a complaint by the top securities regulator in Massachusetts.

Alleged victims of MC2 Capital of Cambridge, Massachusetts included an unnamed institutional investor from the Boston area that invested $2 million, according to Secretary of the Commonwealth William Galvin.

Galvin said he has moved to bar three MC2 Capital hedge funds and Yasuna Murakami, the man who operates them, from any securities business in the state. Galvin alleges Murakami operated the funds as Ponzi schemes while taking in about $15.3 million from at least 47 investors.

“This case represents a classic example of a shell game of moving the money from one investor to another with some left over to fatten the coffers of the money manager,” Galvin said in a statement.

Galvin’s complaint alleges that investors’ money was used to cover expenses for luxury hotels, liquor stores, specialty cars, Nordstrom, Saks Fifth Avenue, and American Express, according to a statement from Galvin’s office.

When summoned to testify before the enforcement section of the securities division, Murakami invoked his privilege against self-incrimination, the statement added.

Murakami was not immediately available for comment.

Galvin said Murakami started his hedge fund operations in 2007 with the MC2 Capital Partners Fund. The fund was marketed mostly to friends and family members, taking in more than $3.5 million, according to Galvin’s statement.

By late 2008, however, the fund had a negative balance of about $2.4 million, triggering a margin call that wiped out investors’ equity, according to Galvin. A second fund, MC2 Capital Value Partners Fund, suffered similar results.

“Murakami and the MC2 Entities actively worked to conceal these losses from investors by soliciting additional investments and providing false or misleading performance numbers,” Galvin said in a statement.

Murakami later struck a deal with Toronto-based Donville Kent Asset Management to start MC2 Capital Canadian Opportunities Fund in 2011, Galvin said. The association with Donville Kent was crucial in getting investors to put in money, including the Boston-area institutional investor.

But in May 2015, Donville Kent cut ties to the MC2 entities.

Galvin alleges Murakami misappropriated investor money from the Canadian fund and used it to pay promised returns or redemptions to investors in the other two MC2 funds. (Reporting By Tim McLaughlin; Editing by Bernard Orr)

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