A barred Philadelphia broker and former investment fund manager has been sentenced to nine years in prison for duping at least 40 investors out of $105 million in a securities fraud scheme, according to the U.S. Attorney’s Office for the District of New Jersey.
Brenda Smith, 61, pleaded guilty in September by videoconference before U.S. District Judge Madeline Cox Arleo to seven counts of securities fraud. She was sentenced Wednesday in U.S. District Court in Newark to 109 months in prison, the U.S. Attorney's Office said. Smith also was given three years of supervised release and ordered to pay restitution of $47.2 million.
Additionally, the U.S. Securities and Exchange Commission Philadelphia Regional Office previously filed a civil complaint against Smith based on the same conduct.
Smith, according to court documents, managed and controlled Broad Reach Capital LP, a pooled investment fund/hedge fund that was established in February 2016 and was open to accredited investors with a minimum investment of $1 million.
From February 2016 through August 2019, Smith, Broad Reach Capital and two other entities Smith controlled raised about $105 million from investors, misrepresenting that the fund “employed several profitable, sophisticated trading strategies involving highly liquid securities, including those that it was uniquely positioned to pursue because of its access to the Philadelphia Stock Exchange trading floor.” Smith referred to these strategies as dividend capture, VIX Convergence, and opportunistic trading.
Authorities said Smith moved most of the funds through the bank accounts of the entities she controlled and used them for, among other things, her own personal investments and to repay other investors. She provided monthly account statements reflecting high returns and “tear sheets” touting the fund’s purported historical performance information, such as claiming annual returns of more than 35% in 2016 and 33% in 2017 and positive monthly returns of 6.07% in the first three months of 2018, including a gain of 1.76% in February 2018.
But the total cash and securities in the Broad Reach Capital bank and brokerage accounts decreased from about December 2016 through June 2019. The brokerage accounts lost about 50% of their value, prosecutors said.
Smith, authorities said, continued to trick investors into investing by providing them with bogus monthly account statements that showed that their investments were safe and earning significant returns. She also misrepresented that she was personally invested in Broad Reach Capital and provided a fictitious account statement to at least one investor.
Even as tens of millions of new investment money poured into the fund, the fund value at its peak was no more than $31.8 million in December 2016, and the total assets within bank and brokerage accounts of the Broad Reach Fund have steadily declined, prosecutors said.
Smith kept investors in the dark as she transferred tens of millions of dollars out of Broad Reach Capital to entities she controlled for personal use, including more than about $10 million for mineral mining operations and about $2 million for American Express credit card bills. She also used the investments to pay other investors who requested redemption amounts.