The SEC has settled fraud charges against Omar Zaki, who the regulator accused of running an unregistered investment adviser and a hedge fund while an undergraduate at Yale.
According to the SEC, Zaki misled fund investors about the fund’s assets under management, performance, and management. According to the SEC’s cease-and-desist order, Zaki allegedly formed the investment adviser and the fund in 2016,and raised approximately $1.7 million from 11 investors between January 2017 and February 2018. Zaki is also accused of providing two investors prospectuses that contained false information about trading history, investment returns, and the composition of a fund management team.
The prospectus Zaki prepared falsely claimed the fund had trading history dating back to December 2016, when it did not start trading until June 2017. It also said the fund had returns from its proprietary algorithm trading ranging from 18% to 114% over a 10-year period, even though the algorithm was not available to the fund prior to 2017 and was never deployed. The prospectus also boasted that the fund had returns in its biotech portfolio in excess of 80% from December 2016 through early March 2017, even though it neither maintained a separate biotech portfolio nor conducted any trading at all until June 2017.
Additionally, the order said that Zaki made additional misrepresentations to one of these investors, including giving written presentations that falsely overstated the fund’s assets and repeatedly concealing the true performance of the investor’s investment in the fund.
The scheme allegedly unraveled when two of the investors in the fund began looking into opening an offshore fund with Zaki, which they intended to offer to their friends and family members. But the investors became suspicious when Zaki refused to allow them to verify the fund’s bank account and brokerage account balances directly with the custodians. Zaki then redeemed the investments made by the two investors after they demanded their money back.
In November 2016, Zaki and fellow Yale student Sami Ahmed established Armitage, LLC, according to Connecticut’s business registry.
“My family members and I were among the investors victimized by Omar Zaki’s fraudulent activities,” Ahmed said in an email to the Yale News, Yale’s student newspaper. “We lost considerable amounts of money from his schemes.”
Zaki agreed to settle the charges against him without admitting or denying the SEC’s allegations.
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