A former Morgan Stanley trader who ran a phony hedge fund from his rented home in the wealthy New York suburb of Pound Ridge, ripping off friends and even his mother, was sentenced to eight years in prison for the $22 million fraud.
Michael Scronic, 46, took money from 46 people, including a former college roommate who went on to become Facebook Inc.’s chief financial officer, in a seven-year scam that unraveled with his arrest by FBI agents last year. Scronic pleaded guilty in March to securities fraud, admitting that he lost the money betting on risky short-term options, while taking about $500,000 a year to cover his expenses.
Scronic “capitalized on the good-heartedness of his friends, and the way they got repaid makes this egregious,” U.S. District Judge Cathy Seibel said in a hearing Thursday in White Plains, New York. “When you do what Mr. Scronic did to people who loved him, I think you forfeit your right to think you’re a good person.”
Scronic, who claimed he was in the grip of a longtime gambling compulsion that drove him from one bad trade to another, admitted in court papers that his Scronic Macro Fund was “really nothing more than a name.”
“My victims weren’t strangers,” Scronic told the judge in court. “We were at each others’ weddings. Their kids called me Uncle Mike.” Scronic said he always thought he would somehow make up the losses, but “I realize now the absolute lunacy of that.”
He used the money raised from his friends to pay for what prosecutors called "a lavish lifestyle," that included $12,275 for monthly rent on a five-bedroom house with its pool and tennis court, his mortgage on a Vermont vacation home, fees for beach and country clubs, and credit card bills.
Scronic has a “moderate to severe” gambling disorder and is working hard on recovery, his lawyer, Alexei Schacht, said. Scronic had asked for a reduced sentence of three years so he can spend time with his 6-year-old son. Prosecutors had argued for 10 years or more.
"I thought the judge paid extremely careful attention to this case," Schacht said after court. "I’m just disappointed that she didn’t appreciate how fully he’s changed" since the arrest a year ago.
Victims Watching
Among Scronic’s victims was Gideon Yu, a part owner of the San Francisco 49ers and former chief financial officer of YouTube and Facebook. Yu lost $3.5 million he loaned to his former roommate at Stanford University where they met in 1989.