A pair of Beverly Hills hedge funds were shut down Wednesday by a federal judge based on claims that their operator scammed investors out of at least $38 million, using the cachet of famous names including Oracle Corp. Chief Executive Larry Ellison.
The Securities and Exchange Commission alleged that Bradley L. Ruderman raised the money for his funds, Ruderman Capital Partners and Ruderman Capital Partners A, by claiming returns as high as 60% through positions in well-known companies such as Apple Inc., Microsoft Corp. and Wal-Mart Stores Inc.
At least one investor was lured into the hedge funds by being falsely told Ellison and Lowell Milken, younger brother of former junk-bond king Michael Milken, were contributors to the funds, the commission said in a civil complaint filed against Ruderman in U.S. District Court in Los Angeles.
Judge Valerie Baker Fairbank on Wednesday temporarily froze the assets of Ruderman, his company, Ruderman Capital Management, and the hedge funds. The commission is seeking injunctions preventing Ruderman from continuing to operate his funds, repayment for investors and financial penalties against Ruderman and his funds.
Lawyers identified by the commission as representing Ruderman didn’t respond to requests for comment Wednesday.
From 2002 to 2009, Ruderman found about 20 investors, telling them the two funds held more than $800 million in assets, the commission said. Instead, the hedge funds were losing millions of dollars a year, and as of March 31, the funds were valued at $387,000, the complaint said.
On Jan. 22, Ruderman made a $750,000 payment to a previous investor using funds from two new investors in a Ponzi-like transaction, the commission said. The two investors, the last two known to invest in the hedge funds, gave Ruderman $500,000 each Jan. 15. Without their $1-million investment, Ruderman wouldn’t have been able to pay the previous investor, the complaint said.
Ruderman also issued quarterly account statements to investors stating false returns on investments at rates of 60% to 15% from 2002 to 2008, court documents said.
As recently as March 31, Ruderman asked his current hedge fund investors to help him find new investors, the commission said.
The scheme collapsed on April 15 when Ruderman’s attorney sent investors a letter saying “there is currently very little value in the assets held by the [funds],” the suit said.
“As alleged in our complaint, Ruderman was willing to say or do anything to persuade investors to entrust their money to him, particularly when his scheme was unraveling,” said Rosalind R. Tyson, director of the SEC’s Los Angeles regional office. “Ruderman’s fabricated account statements presented a rosy picture for investors who were cajoled into believing these hedge funds were well-capitalized and experiencing significant gains rather than major losses.”