Investment fund manager Brenda Smith has been indicted by a federal grand jury on six counts of wire fraud and one count of securities fraud for allegedly operating a $68 million investment scheme, according to U.S. Attorney Craig Carpenito in the Newark, New Jersey office. The Securities and Exchange Commission filed a civil complaint against Smith in August 2019 based on the same alleged misconduct.
Smith and her investment fund, Broad Reach Capital LP, raised nearly $68 million from approximately 40 investors between February 2016 and August 2019, promising to invest in publicly traded securities through various trading strategies that she claimed would provide consistently high returns.
According to SEC filings, Broad Reach Capital is a Regulation D fund established in February 2016 that was open to accredited investors with a minimum investment of $1 million.
According to documents filed in this case and statements made in court, Smith allegedly failed to invest the money as advertised and purportedly diverting tens of millions of dollars of investor funds out of Broad Reach for purposes inconsistent with its trading strategies, including for personal use and to pay out millions of dollars to other investors who requested redemptions.
For example, Smith allegedly transferred tens of millions of dollars out of Broad Reach to entities she controlled, including more than $10 million for mineral mining operations and $2 million for American Express credit card bills.
In addition, she purportedly distributed written materials about Broad Reach Capital to investors and prospective investors that included historical “performance” information, claiming annual returns of more than 33 percent in 2017 and positive monthly returns in 2018.
However, the total cash and securities in the Broad Reach Capital bank and brokerage accounts decreased substantially from December 2016 through June 2019. For example, its written materials touted a return of 1.76 percent in February 2018, but prosecutors claim that the accounts lost more than 50 percent of their value.
The wire fraud counts carry a maximum penalty of 20 years and a $250,000 fine, or twice the gross amount of gain or loss from the offense, whichever is greater. The securities fraud count carries a maximum penalty of 20 years in prison and a $5 million fine.
The charges and allegations in the indictment are merely accusations, and Smith is presumed innocent unless and until proven guilty.