Investment Firm Head Sentenced to More Than 7 Years in Prison for Pre-IPO Fraud

Fred Elm falsely told investors they could invest in Twitter, Alibaba, and Uber prior to their IPOs.

Fred Elm, founder and manager of Elm Tree Investment Advisors (ETIA), has been sentenced to more than seven years in prison for his role in a scheme to defraud investors by leading them to believe they could invest indirectly in Twitter, Alibaba, Uber, Square, Pinterest, and GoDaddy prior to the firms’ initial public offerings (IPOs).

According to the US Attorney’s Office for the Southern District of New York (SDNY), Elm—also known as Frederic Elmaleh—and Ahmad Naqvi, Elm Tree’s chief operating officer (COO), fraudulently convinced more than 50 investors to invest over $18 million in multiple investment funds created and controlled by Elm and Naqvi. The two falsely told investors that they would be able to invest into the well-known privately held tech companies before their IPOs through the Elm Tree funds.

However, that never happened and the majority of investor funds were instead misappropriated for personal use, lost through poor trading, or used to repay investors in a Ponzi-like scheme, according to the SDNY.  Elm used the ill-gotten funds to purchase a multimillion-dollar home, high-end furnishings, jewelry, and luxury automobiles, including a Bentley, a Maserati, and a Range Rover.

According to the indictment charging Elm and Naqvi, their scheme to defraud investors stretched from at least June 2013 through December 2014. The 50 investors invested in four limited partnerships for which ETIA acted as the fund manager: Elm Tree Investment Fund LP; Elm Tree Emerging Growth Fund LP; Elm Tree ‘e’Conomy Fund LP; and Elm Tree Motion Opportunity LP.

Elm and Naqvi claimed they had access to the pre-IPO shares because of their relationships with venture capital (VC) firms such as Kleiner Perkins Caufield & Byers, Benchmark Capital, and Silver Lake.  However, in reality, Elm and Naqvi did not invest in the pre-IPO shares of these companies and did not have relationships with the VC firms.

The SDNY said the Elm Tree Funds never returned a profit and had lost approximately $3.9 million in poor trading between January 2014 and November 2014.

“Fred Elm told investors the Elm Tree Funds would generate huge profits from investments in privately held technology companies,” Audrey Strauss, the acting US Attorney for the SDNY, said in a statement. “In fact, the Elm Tree Funds never invested in these pre-IPO companies and never returned a profit. Further, Elm lied to investors to conceal that their money was being comingled, misused, and lost.”

Elm pled guilty to conspiracy to commit securities fraud and securities fraud, but not before jumping bail and fleeing to Canada in June 2017, one week before he was scheduled to be in court. He was arrested in Canada and extradited to the US in January 2020. Naqvi, who pled guilty to one count of securities fraud conspiracy, also fled to Canada, where he was eventually arrested and extradited to the US in November 2019.

Elm, who was also sentenced to three years of supervised release, was ordered to forfeit more than $8.3 million and to pay restitution of more than $12.4 million.

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