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23 Feb 2007

Hedge Funds Charged With Fraud

A Washington hedge fund manager has been charged with defrauding Maryland investors of $9 million by soliciting money for his hedge funds, LaJon Corp, LaJon Capital Management, LaJon Capital Advisors and LaJon Capital Fund.

Attorney General Douglas F. Gansler froze the assets of Williams's hedge funds, saying that John H. Williams of Upper Marlboro violated eight civil statutes of state security laws.

Williams lured investors with free lunch seminars and hid losses with fake statements, the state attorney general's office said. Williams became involved in the scheme after meeting a Canadian hedge fund trader, Stephen Chesnowitz, in an Internet chat room, according to a court filing by Gansler's office.

According to The Washington Post, the two traders sent out mass mailings advertising a free "gourmet meal" and the opportunity to "earn excellent returns with a guarantee against market risk." More than 150 people, mainly from Montgomery and Prince George's counties, attended the seminars and gave Williams a total of $9 million. He transferred the money to Chesnowitz's hedge funds in Canada and the Cayman Islands.

Investors could log onto a Web site to check how the hedge funds were doing, and online statements showed that their investments were profitable. But that was not true. On April 28, 2006, alone, the hedge fund piled up $626,380 in losses, the filing said. Williams, "knowing the money was gone . . . continued to take fees" based on phantom returns, the court filing said. In total, Williams paid himself $586,000 for managing the investments.

Maryland officials said they are trying to figure out how much Williams lost in his trades and whether there is anything left to return to investors. Most of the money has been transferred out of the country to Chesnowitz's firms.