Hedge Fund Manager Faces Prison Time

In an investigation conducted by the FBI, the US Postal Service, and the SEC, hedge fund manager Joseph Ferona now faces prison time after pleading guilty to a fraud charge. His sentencing is scheduled for Aug. 24, Ferona disappeared in 2005 but was arrested earlier this year in Austin, Texas.

From October 2003 through May 2005, Ferona devised a scheme to defraud investors of money by false pretenses by soliciting individuals to invest funds into a “hedge fund” known as Global Prosperity Fund. Ferona purported to operate this fund through Castle Rock Trading Company, based in Castle Rock and Franktown, Colorado.

However, he was not registered with the State of Colorado. As part of the scheme, Ferona made fraudulent representations to investors, including that the fund realized annual returns or profits in excess of 40%, that returns for 2005 were projected as reaching 50 percent, and that the fund earned double digit returns during both good and bad market conditions.

Ferona allegedly concealed massive trading loses by generating and distributing false and fictitious quarterly and monthly investor account statements, falsely depicting each investors’ fund balance as appreciating based on the falsely reported returns.

“There is no such thing as a ‘guaranteed’ or ‘insured’ investment,” said U.S. Attorney Troy Eid. “Investments that promise unrealistic returns with no risk are virtually always fraudulent.”

Ferona now faces 23 counts of mail fraud, each carrying a penalty of up to 20 years imprisonment, and up to a $250,000 fine. He faces five counts of wire fraud, each carrying up to 20 years in federal prison, and a $250,000 fine. He also faces 9 counts of money laundering, with four of the counts carrying up to 20 years imprisonment, and a $500,000 fine, and 5 of the counts carrying up to 10 years imprisonment, and up to a $250,000 fine.