A Miami-based asset manager has been criminally charged with fraud for allegedly stealing $1 million from his clients in a scheme that already has landed a portfolio manager in jail.
John Geraci, the asset manager, has been charged with investment advisor fraud, securities fraud, wire fraud and conspiracy in connection with the scheme in an indictment unsealed Tuesday by the U.S. Attorney for the Southern District of New York.
Geraci faces a prison term of up to 50 years and a fine of up to about $4 million, according to prosecutors.
In a parallel action, Geraci has been charged with fraud in a civil lawsuit filed by the Securities and Exchange Commission.
In an ironic twist, the money was ‘re-stolen’ from the clients by Geraci after the portfolio manager stole it from Geraci, according to the allegations.
The SEC complaint said Geraci formed the Meridian Matrix Long Short Equity Fund in 2015, and hired Nicholas Mitsakos and his company, Matrix Capital Markets, as the fund's portfolio manager.
Mitsakos had no assets under management, but falsely claimed that he managed millions of dollars of assets and that he had generated returns of up to 66 percent in preceding years. Mitsakos was sentenced to 30 months in prison and ordered to pay $861,000 in restitution by a New York federal court last December for his role in the scheme.
In 2015 and 2016, Geraci knew Mitsakos’ claims were not true and learned Mitsakos was under investigation by the U.S. Attorneys Office, according to prosecutors. But he continued to try to raise money that supposedly was being invested with Mitsakos, the criminal complaint says. He received about $2 million from two investors.
As the scheme unraveled, Mitsakos returned half of the $2 million investment to Geraci, but Geraci told his clients that Mitsakos lost the entire amount, according to the complaint. He then turned around and used the $1 million he got back for his own use and he gave his clients fictitious reports showing that their investments were making millions of dollars, U.S. Attorney Geoffrey S. Berman said..
“When John Geraci realized that Nicholas Mitsakos was a con artist, he withheld this fact from investors he had solicited for the purportedly high-yield fund run by Mitsakos," Berman said in a statement. "Geraci allegedly concealed Mitsakos’ fraud because it was lucrative for him."