Former hedge fund manager Yasuna Murakami was sentenced to six years in prison, and ordered to pay more than $10.5 million in restitution after pleading guilty to defrauding hedge fund investors.
Murakami admitted to diverting millions of dollars of investor funds to accounts that he controlled, which he then used to support an extravagant lifestyle that included paying for a sports car, international travel, high-end shopping trips, luxury hotel stays, and thousand-dollar restaurant bills. He also used the money to place investments in his own name, and make Ponzi scheme-like payments to investors who requested redemption.
According to US district court filings, Murakami and his business partner Avi Chiat defrauded more than 50 investors in three hedge funds run by their two-man investment advisory businesses Cambridge, Mass.-based MC2 Capital Management, LLC and MC2 Canada Capital Management, LLC. .
When the two opened the Partners Fund in 2007, they marketed it mainly to their friends and family. The fund purportedly had a value-oriented investment strategy, and focused on small-and mid-cap US stocks. The two raised more than $15 million from investors, and then lost more than 70% of the money raised for their first hedge fund in less than two years due to unprofitable trading.
“In reality, the Partners Fund had no discernible strategy and lost nearly $600,000 in the first three months of trading,” said the administrative complaint from the Massachusetts Securities Division. And the following year, in late 2008, poor trading moves led the Partners Fund to a negative cash balance of nearly $2.4 million, which “resulted in a margin call, decimating the Partners Fund with an almost-total loss of investor’s equity.”
The losses ultimately led Murakami to operate the fund as a Ponzi scheme from 2011 to 2017.
Murakami also admitted to withholding material information regarding the management of a hedge fund, and to providing investors with falsified account statements and tax documentation in an effort to trick them into thinking their investments were safe, and that the hedge fund was above board.
In 2017, the SEC filed an enforcement action against Murakami in federal district court in Boston, alleging that he misappropriated more than $8 million for business and personal expenses, and made approximately $1.3 million in Ponzi-like payments. The SEC also charged Chiat for allegedly helping Murakami raise money from investors while providing investors with fake account statements that vastly overstated the investment’s performance.
Additionally, the SEC charged Murakami and Chiat with aiding and abetting MC2 Capital Management, LLC’s and MC2 Canada Capital Management, LLC’s violations of the Investment Advisers Act. The SEC’s litigation against Murakami and his co-defendants remains ongoing.
In a parallel criminal action, the US Attorney’s Office for the District of Massachusetts also charged Murakami with one count of wire fraud.