News Column

$55M in penalties against hedge fund

June 7, 2014

By Andrew Wyrich and Hugh R. Morley, The Record (Hackensack, N.J.)

June 07--A Superior Court judge has found that a group of hedge-fund managers, including a Hillsdale man, broke securities and civil fraud laws, and ordered them to pay more than $55 million in civil penalties, investor restitution and disgorgement for fraudulently selling millions of dollars in securities.

The managers, among them John R. Najarian, 36, of Hillsdale, engaged in a "massive" fraud by selling the securities to 76 investors through sales representatives who were not registered with the state to sell securities, according to a statement on Friday from the state Division of Consumer Affairs and court documents released by the agency. The division includes the Bureau of Securities, which regulates the securities industry in New Jersey.

The investment opportunity was described to investors as a hedge fund for "little guys ... moms and pops," the division said. The scheme ran from 2009 to 2011 and the suit was filed in 2012.

The group also deceived investors by overstating the hedge fund's net asset value, which in turn produced higher management fees for the participants, according to the statement. In addition, the group failed to disclose that one of the managers, Peter Zuck, 63, of Middletown, had prior theft and fraud convictions, for which he spent five years in prison, the statement said.

The managers also were fined for concealing losses, failing to disclose their use of investors' funds for the benefit of themselves and family members.

"Investors lost millions in this scheme, and our focus is on taking appropriate action against those responsible," John J. Hoffman, the acting attorney general, in the statement. "This includes barring the most culpable of these scammers from the securities industry."

Judge Hector R. Velazquez, sitting in Hudson County, on May 9 ordered Michael J. Spak, 45, of Chesterfield and Joseph C. Spak, 71, of Milltown to pay a $10 million penalty each and Brian J. Spak to pay a penalty of $7 million.

Those three men, and Zuck, must also pay a share of a $7.6 million disgorgement of profits from the scheme and for restitution to victims.

Also ordered to contribute were Osiris Fund Limited Partnership and Osiris Partners LLC, which were also levied penalties of $10 million each. Osiris Fund Limited Partnership issued securities that were sold in the scheme and Osiris Partners was the company's investment manager.

The judge, granting a motion sought by prosecutors, found that the Spaks and the two companies violated state fraud laws, made misleading statements, engaged in securities fraud and acted as unregistered securities agents.

Zuck, Najarian and his wife, Jessica, 31, of Hillsdale, were each ordered to pay restitution to investors, plus $160,000 in civil penalties.

John Najarian was chief operating officer of Osiris Partners LLC, a general partner of Osiris Fund Limited Partnership, the suit said. It alleges that he received at least $421,000 in management fees from the fund, and that his wife received at least $190,000, through IGF Consulting, a Northvale company she owns that was described as a member in Osiris Partners.

John Najarian in December was ordered to pay $750,000 in disgorgement, restitution and penalties, and his wife was ordered to pay $280,000 in disgorgement. IGF Consulting was ordered to pay $725,000 in disgorgement and restitution. Zuck, in April, was ordered to pay $7.4 million in penalties, disgorgement and restitution.


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Source: Record (Hackensack, NJ)

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