On October 1, the U.S. Attorney for the Southern District of New York filed a complaint against New Jersey fund manager William J. Wells charging him with running a “Ponzi” scheme which raised over $1.5 million from investors. According to the complaint, Wells “engaged in a fraudulent scheme to obtain investments by falsely representing that he had achieved consistently positive trading returns in the U.S. equity markets, including through the successful use of options to hedge risk.” Wells allegedly misled investors by claiming that (i) his trading was generating positive returns when it was not; (ii) investors held investments in certain stocks when, in fact, neither Wells nor his firm did; and (iii) sub-accounts had been created for clients, but no such sub-accounts were ever funded. Wells was charged with one count of securities fraud and one count of wire fraud, each carrying a maximum prison sentence of 20 years and a maximum fine of $5 million, or two times the gross gain or loss from the offense.

In a parallel action, the SEC filed a complaint charging Wells with violations of the Securities Act, the Securities Exchange Act, and the Investment Advisers Act.