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SEC Charges New York-Based Fraudster Who Spent Investor Funds on Drugs and Gambling

11/19/2012

FOR IMMEDIATE RELEASE
2012-235

Washington, D.C., Nov. 19, 2012 — The Securities and Exchange Commission today charged a purported investment adviser in New York with defrauding investors who he convinced to invest in his start-up businesses while in reality he was spending their money on illegal drugs and gambling.


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The SEC alleges that Stephen A. Colangelo, Jr. repeatedly misled investors while raising $3 million in investments for four start-up companies that he created. He also persuaded three other investors to let him act as their investment adviser and they gave him more than $1 million to invest in the markets on their behalf. Colangelo boasted a phony professional and educational background and hid his past criminal activities from potential investors, and he falsely claimed to have historically achieved extremely high returns buying and selling securities. Meanwhile, Colangelo siphoned off at least $1 million in investor funds to pay such unauthorized personal expenses as his federal income taxes, illegal narcotics, gambling, cigars, and travel for him and his family.

In a parallel action, the U.S. Attorney’s Office for the Southern District of New York today announced criminal charges against Colangelo.

“Colangelo used blatantly false claims of investment success to lure investors to pour a substantial portion of their life savings into his numerous business and investment schemes,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office. “In reality they were footing the bill for his illegal activities, luxury vacations, and even his income taxes.”

According to the SEC’s complaint filed in the U.S. District Court for the Southern District of New York, Colangelo’s fraudulent scheme began in 2009 when he induced investors to invest more than $750,000 in the Brickell Fund LLC, a pooled investment vehicle that he created, advised, and controlled. In March 2009 when the Brickell Fund did not have any investors and Colangelo was not buying and selling securities on behalf of the fund, he sent numerous e-mails to potential investors boasting phony information. For instance, one e-mail claimed, “BEST TRADING DAY OF MY LIFE!!!!!!!. . . . Up over 400% and documented. Mind boggling to say the least.” In reality, Colangelo did not make any trades that day.

The SEC alleges that after spending or losing all of the money invested in the Brickell Fund, Colangelo continued to fraudulently raise funds from investors for three other startup businesses he created – Hedge Community LLC, Start a Hedge Fund LLC, and Under the Radar SEO LLC. Some individuals provided Colangelo with funds directly to invest on their behalf. Colangelo continued to use investor funds for a variety of purposes that weren’t disclosed to investors, namely personal expenses and unrelated business expenses.

According to the SEC’s complaint, Colangelo created a profile on the LinkedIn website used for professional networking and misrepresented that he had studied finance at Nyack College from 1986 to 1989. Colangelo provided a link to his profile to potential and existing investors in one of his start-up companies. His representations to investors were false because he never attended Nyack College and has not graduated from high school.

The SEC’s complaint charges Colangelo with violations of the anti-fraud provisions of the federal securities laws, and seeks permanent injunctions, financial penalties, and disgorgement of ill-gotten gains plus prejudgment interest.

The SEC’s investigation was conducted in the New York Regional Office by Senior Attorney Christina McGill and Assistant Regional Director Wendy B. Tepperman. The SEC’s litigation will be led by Senior Trial Counsel Kevin McGrath. The SEC thanks the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation for their assistance in this matter.

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