On August 6, 2013, the SEC obtained an emergency court order to halt a hedge fund investment scheme by a former Marine living in the Chicago area. The former Marine masqueraded as a successful trader to defraud fellow veterans, current military, and others.
The SEC alleged that Clayton A. Cohn and his hedge fund management firm Market Action Advisors raised nearly $1.8 million from investors through a hedge fund he managed. Cohn lied to investors about his success as a trader, the performance of the hedge fund, his use of investor proceeds, and his personal stake in the hedge fund. Cohn invested less than half of the money raised from investors and instead used more than $400,000 for such personal expenses as a Hollywood mansion, luxury automobile, and high-end nightclubs. In order to cover up his fraud and continue raising money from investors, Cohn generated phony hedge fund account statements showing annual returns exceeding 200 percent.
According to the SEC’s complaint filed in Chicago, Cohn targeted mostly unsophisticated investors and solicited friends, family members, and fellow veterans. Cohn controlled a so-called charity called the Veterans Financial Education Network (VFEN) that purported to teach veterans how to understand and manage their money.
The SEC alleged that Cohn managed his hedge fund Market Action Capital Management through his investment advisory firm Market Action Advisors, which is registered with the state of Illinois. Cohn solicited investments by falsely claiming that he had major success as a personal trader and invested $1.5 million of his own money in the hedge fund. He also misrepresented that an accounting firm would audit the hedge fund’s financial statements.
According to the SEC, Cohn had a record of trading losses, invested no more than $4,000 of his own money, and absconded with money for his personal expenses. The audit firm named by Cohn never agreed to audit the fund’s financial statements. Cohn continued to deceive investors after their initial investment by issuing account statements that showed annual returns of more than 200 percent for 2012 when the hedge fund actually lost money.
The SEC’s complaint charged Cohn and Market Action Advisors with violating the antifraud provisions of the federal securities laws. The court granted the SEC’s request for emergency relief including a temporary restraining order and asset freeze. The SEC further seeks permanent injunctions, disgorgement of ill-gotten gains, and financial penalties from Cohn and Market Action Advisors. It was unclear whether the customers initiated any type of securities arbitration proceeding.