Investors Told Money Would Be Returned After “Stars Aligned”

In yet another of what seems to be an endless stream of offering fraud cases, an individual who claimed to be the heir of a well known drug chain in the New York area raised over $11 million from investors who understood their cash was going to into his hedge fund. Unfortunately, not only was the investment a lie, the person claiming to be the heir of the store chain was also not who he claimed to be. U.S. v. Genovese, No. 1:18-cr-00183 (S.D.N.Y. Sentencing Feb. 14, 2020).

Nicholas Genovese claimed he operated an established hedge fund that he founded. Beginning in 2015 Mr. Genovese solicited individuals to invest in the fund. He claimed to be part of the family that owned the Genovese Drug Store chain which had operated in the New York area. Investors were given to believe that he was the heir to the family’s fortune from the sale of the business for hundreds of millions of dollars in the late 1990s. Investors were also informed that he had graduated from Dartmouth College’s Tuck School of Business and he had extensive Wall Street experience with blue chip firms. Ten investors entrusted Mr. Genovese with about $11.2 million.

The representations were false. Mr. Genovese had no connection to the family that owned the drug store chain, had not attended Dartmouth and never worked as a senior executive at any major Wall Street firm. To the contrary he had a string of prior felony convictions for fraud related crime.

When investors requested that their funds be returned Mr. Genovese stalled. He told them that the return could only be made after the “stars aligned.” Otherwise all could be lost. Records indicate that much of the investor capitol was lost, apparently through investments. Other portions were diverted to the personal use of Mr. Genovese.

Defendant pleaded guilty to one count of securities fraud. Last week he was sentenced to serve 140 months in prison. In addition, he was ordered to serve three years of supervised release following the prison term and pay restitution to his victims in the amount of $11,211,704 in addition to forfeiture of the proceeds of the crime. See also SEC v. Genovese, Civil Action No. 1:18-cv-00942 (S.D.N.Y.).

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