Brenda Smith, an investment adviser who previously pled guilty to securities fraud, was sentenced to 109 months in prison and ordered to pay $47.2 million in restitution in a parallel criminal case. The SEC filed its civil complaint against Smith in August 2019.
Smith and her investment fund, Broad Reach Capital LP, raised approximately $105 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.
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.
The complaint alleges that Smith made very few investments in its trading strategies, and instead used investors’ money to repay other investors and for her own personal investments.
Smith also reportedly fabricated documents to inflate Broad Reach’s assets. Written materials about Broad Reach were sent to investors and prospective investors that included historical “performance” information, claiming annual returns of more than 33 percent in 2017. A presentation and 2018 tear sheet showed a return of 6.07 percent in the first three months of 2018, including a gain of 1.76 percent for February 2018, the SEC said.
However, the fund’s brokerage accounts reportedly “suffered massive losses” in February 2018, with the primary Broad Reach account losing more than 50 percent of its value, dropping from approximately $17.7 million to approximately $8.8 million by the end of the month.
At the time it filed the complaint, the SEC obtained an emergency asset freeze, and later, a preliminary injunction extending the freeze. The court also appointed a receiver over the defendants and other related entities.
The SEC’s civil action is pending.