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Four hedge fund traders indicted in Black Diamond Capital Solutions Ponzi scheme

Friday, February 24, 2012

Bailey McCann, Opalesque New York: Four mid-West-based hedge fund traders were indicted by a federal grand jury for charges that they created a $40m ponzi scheme according to a statement from the Federal Bureau of Investigation (FBI).

The indicted defendants are Jonathan D. Davey, Jeffrey M. Toft, Chad A. Sloat and Michael J. Murphy. They face charges for operating fake hedge funds under the name Black Diamond Capital Solutions (Black Diamond) – not to be confused with Black Diamond Capital Management, LLC, a U.S.-based alternative asset management firm with $10bn+ in AuM.

According to the indictment, from 2007-2010 the defendants told investors that they had done due diligence on Black Diamond and that it was a low risk hedge fund. Eventually, the fake fund started to collapse and a second Ponzi account was created managed by Jonathan Davey which Davey used to pay off investors and fund his and the defendants’ lifestyles.

Davey is also being charged with tax evasion for claiming that investor money claimed on his tax returns was a loan. The money was used to build Davey’s mansion. The defendants face up to 30 years in prison and hundreds of thousands of dollars in fines if convicted. They will make their first court appearance soon.

Other convictions have already taken place around Black Diamond. On December 16, 2010, ......................

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