A purported investment advisor was arrested yesterday on charges he swindled investors of $3 million that he used for gambling and illegal drugs instead of investing the money in a hedge fund and other businesses.

Stephen A. Colangelo Jr. of Congers, N.Y., was arrested at his home on two counts of securities fraud and two counts of wire fraud in an indictment unsealed yesterday, said the U.S. Attorney for the Southern District of New York and the New York Office of the FBI. He faces up to 20 years in prison on each of the criminal charges.

The Securities and Exchange Commission also announced a civil action against Colangelo for the same scam. The SEC alleges that Colangelo repeatedly misled investors while raising money for four start-up companies. He also persuaded three others, who gave him more than $1 million to invest, to let him act as their investment advisor.  Colangelo provided clients with a fake professional and educational background and hid his past criminal activities from potential investors, the SEC says, and he told potential investors he had historically achieved extremely high returns buying and selling securities.

Colangelo solicited money from investors for the Brickell Fund, a hedge fund; as well as Hedge Community, Start a Hedge Fund and Under the Radar SEO. The SEC says that 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.

The SEC claims that one of Colangelo's e-mail read "Best Trading Day DAY Of My Life!!!!!!!. Up over 400 percent and documented. Mind boggling to say the least." In reality, however, the SEC claims that Colangelo hadn't made any trades that day.

Colangelo, says the SEC, also created a profile on the LinkedIn Web site used for professional networking and misrepresented that he had studied finance at Nyack College from 1986 to 1989. He 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.

In June 2009, Colangelo was sentenced to probation in Florida in connection with 2007 felony charges for burglary, theft and engaging in a scheme to defraud. In May 2003, Colangelo entered a pre-trial diversion program in Florida in connection with 2002 felony charges that Colangelo issued a worthless check and deposited or cashed an item with a bank or depository institution with intent to defraud.

"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."