Holmdel broker pleads guilty to $40M fraud Hedge fund reported $50M in assets while on verge of collapse A
Holmdel broker pleads guilty to $40M fraud
Hedge fund reported $50M in assets while on verge of collapse
AHolmdel stockbroker has pleaded guilty to what authorities call the largest hedge fund fraud in the state.
John Natale, 45, pleaded guilty March 3 to a three-count accusation before Judge Joseph A. Falcone in state Superior Court in Essex County, according to Attorney General John Farmer. Natale is charged with securities fraud, theft by deception and misapplication of entrusted property.
Natale, who is well-known in the Holmdel community having served as president of the Holmdel Youth Athletic Association, turned himself in at the Attorney General’s office in Trenton. "He walked in and confessed a couple weeks before he pleaded," said Chuck Davis, a public information spokesman with the office.
According to authorities, Natale, who also has a Long Branch residence and was named Man of the Year by the Holmdel Republican Club last spring, admitted that over an eight-year period he received approximately $40 million by falsely reporting profits from investment partnerships he managed through his Red Bank investment business.
On paper, the partnerships reported assets of over $50 million, when, in fact, they were on the verge of collapse with assets of less than $3 million.
As part of the plea agreement, the state will recommend that Natale be sentenced to 10 years in prison and that he serve four years before becoming eligible for parole, Farmer said. Natale also has agreed to make restitution to the approximately 180 investors.
Natale’s bail was set at $500,000, and sentencing is scheduled for May 19.
Following the criminal plea, Farmer moved before Superior Court Judge Benjamin Cohen to restrain any assets that remain and to appoint a receiver to protect investors from further harm, taking possession, among other things, of Natale’s personal assets.
Natale ran his two hedge fund partnerships, Cambridge Partners, L.P. and Cambridge Partners II, L.P., out of Red Bank.
A hedge fund is a partnership of investors not currently required to be registered with securities regulators. Because they are not registered, they can use riskier trading strategies that are forbidden or restricted in registered funds.
In Natale’s case, according to Paul Zoubek, director of the N.J. Division of Criminal Justice, the high risk hedge funds bet that certain stocks, particularly technology stocks, would fall in value over time. The gamble on technology stocks was consistently wrong, according to Zoubek.
"Natale admitted that he controlled and managed two hedge funds that suffered substantial losses under his management," Farmer said.
"Within a short time after starting the funds in 1992, he lost $20,000," Farmer said. "Instead of reporting that loss and further losses in later years, Natale falsified financial and securities documents over the next eight years to show the value of the fund had reached $50 million. He kept taking in investors’ money and losing it until the losses reached approximately $40 million."
While in reality he was losing millions, Natale reported such consistently successful earnings that at times his funds were listed as recommended investments on sophisticated investors’ Internet Web sites, Farmer noted.
In court, Natale admitted to defrauding not only individual investors in New Jersey and other parts of the country, but institutional and foreign investors who had invested heavily, according to Farmer. The victims were provided financial statements which were based on inflated reports Natale provided to his accountant. Natale stated that his accountant was unaware the reports were inflated.
"People placed a trust in the defendant and he deceived them until his scheme fell apart," Farmer said. "Natale has agreed to cooperate, and over the next several months my office will examine how such a scheme was able to continue for such a long period of time and with such great losses."
At the investment partnership’s inception in 1992, victims paid $50,000 to buy a stake in Natale’s funds, and because of its falsely reported success, he attracted approximately 60 limited partners. Within a short time, Natale lost $20,000, but rather than report the loss, according to Zoubek, he altered the fund’s monthly statements. Investors in the funds were provided tax documents showing that they had made a profit when in fact they had sustained significant losses.
When he created Cambridge Partners II, L.P., Natale raised the minimum investment in the fund to $250,000. From the initial loss to the closing of the fund with the court proceedings, Natale duped nearly 180 investors out of more than $40 million, Zoubek said.
In a coordinated filing, the state Division of Law, on behalf of the Bureau of Securities within the Division of Consumer Affairs, filed a complaint against Natale seeking to appoint a receiver for the remaining assets in the funds.
The state asked the Superior Court to appoint former Attorney General James R. Zazzali to act as a receiver for the funds. The receiver will have the power to collect the remaining money in the funds, as well as Natale’s assets, in order to compensate investors.
Victims were to be contacted by letter and told how the process will work.
"This individual stole millions of dollars from people who trusted him to invest in their futures," said Division of Consumer Affairs Director Mark S. Herr. "He not only robbed them of their money, but of their sense of trust and their futures."
In the civil proceeding, Judge Cohen ordered the parties to appear at a status conference at a later date.
At the time of the court proceedings, Natale stated that the funds had less than $3 million in assets. Those assets, Natale’s own personal assets and any others the receiver uncovers, will provide the basis of restitution payments to the victims.
Deputy Attorney General Rodger Wolf, of the Financial Crimes & Antitrust Bureau within the Division of Criminal Justice, represented the state at the criminal proceeding. State investigator Kim Karasiewicz conducted the investigation.
At the civil proceeding, Deputy Attorney General Joshua I. Savitz represented the state. New Jersey Bureau of Securities Enforcement Chief Investigator Richard Barry conducted the investigation for the Division of Consumer Affairs.
"The rules are pretty basic: You can’t steal," said the attorney general. "This case shows that civil and criminal authorities in the Attorney General’s Office will work together to prosecute those who steal from anyone."