A 29-year-old investment advisor who described himself as the “youngest African-American hedge fund founder in history” pleaded guilty today to engaging in a wire fraud conspiracy to steal over $1 million from investors.
Frederick Douglas Scott, CEO of ACI Capital Group in Manhattan, waived indictment and pleaded guilty to wire fraud conspiracy and lying to Securities and Exchange Commission officials who were conducting a regulatory examination of his firm.
The U.S. Attorney’s Office for the Eastern District of New York says Scott faces up to 20 years’ imprisonment on the fraud charge and five years’ imprisonment on the false statement charge. Scott, who registered his firm with the SEC in July 2011, also faces a fine equal to double the investors’ losses, mandatory restitution of $1,338,770 to the victims and forfeiture of assets.
“Today, Fredrick Douglas Scott admitted that he used ACI Capital to steal his clients’ investments and fund his own lavish lifestyle. Rather than the historic figure he presented to the media, Scott stands revealed as a common thief, who lied his way into his investors’ pockets and then continued his web of lies when confronted by the SEC,” said U.S. Attorney Loretta E. Lynch
Meanwhile, the SEC today charged Scott with defrauding investors and falsely claiming his assets under management were $3.7 billion to bolster his credibility when offering too-good-to-be-true investment opportunities.
According to documents filed in the case, ACI was founded by Scott in 2009 and purported to be an investment banking and advisory firm with an office at 477 Madison Avenue in New York. ACI registered as an investment advisor with the SEC in July 2011 and, according to its most recent regulatory filing, claimed to manage $3.7 billion in assets.
Scott touted his qualifications as an investor to potential clients, including distributing the May 2010 issue of Ebony magazine, which described him as “the youngest African American hedge fund founder in history,” but in reality, Scott used ACI to execute his fraudulent scheme, causing over a million dollars in losses, the U.S. Attorney’s office said..
Scott worked with intermediaries or finders to locate potential victims, whom he promised a high rate of return for providing short-term financing to businesses purportedly associated with ACI, the U.S. Attorney said. But once victims wired money to ACI, Scott stole the funds for his personal use. Bank records show that Scott used client funds to finance his lifestyle, purchasing personal items at businesses including Louis Vuitton, the Apple Store, Starbucks, Fair Bail Bonds, True Religion Jeans, Tao Restaurant, the Hampton Inn SoHo and Dizzy's Coca-Cola Club. Bank records also show that Scott wired stolen client funds directly into his personal checking account.
The SEC says Scott paid no returns to investors and used their money to fund such personal expenses as his children’s private school tuition, air travel and hotels, department store purchases, and several thousand dollars in dental bills, the SEC says.
One variation of Scott’s fraud was a so-called advance fee scheme—Scott promised investors that ACI would provide multi-million-dollar loans to people seeking bank financing, the SEC says. But investors were told that they first needed to advance ACI a percentage of the loan amount, and once they did so they would receive the remaining balance of the amount that Scott promised to pay. Scott had no intention of ever returning the money, nor did he repay it, the SEC says.
In another iteration of his fraud, the SEC says, Scott offered investors the opportunity to make a bridge loan to a third-party entity. The investor was told to fund one portion of the loan, and ACI would supposedly fund the remaining balance. In exchange, the investor would supposedly receive a substantial return on his initial investment. In this scheme, as with each of his others, investors never received returns and Scott stole the money, the SEC charges.