UPDATED OCT. 19, 2013. George Sepero has been sentenced to 100 months in federal prison. Our earlier story is below and has been edited to correct spelling.
The word “proprietary” has been used again to mask a large financial swindle, federal prosecutors said.
George Sepero, 39, of Glen Rock, N.J., has been indicted on charges he was running a hedge-fund scam and a separate scam designed to steal the life savings of an elderly New Jersey woman with serious medical problems.
Sepero now has been charged in a 17-count indictment with 16 counts of wire fraud and one count of conspiring to commit wire fraud.
The caper involved Pelt Capital, Caxton Capital Management, SP Investors Inc. and CCP Pro Consulting Inc., prosecutors said.
As part of the hedge-fund scam, Sepero and co-conspirators “claimed they owned and controlled a proprietary computer algorithm for trading foreign currencies, that they had used the algorithm to achieve returns of more than 170 percent in the prior two years, and that any investment funds would be highly liquid and could be withdrawn on days’ notice,” the office of U.S. Attorney Paul J. Fishman of the District of New Jersey said.
In reality, “Sepero and others invested little money in foreign currency or any other investment vehicle, instead diverting the vast majority of victims’ investments to pay prior victims in Ponzi-scheme style and to finance extravagant personal expenditures,” Fishman’s office said.
Any number of scammers have used the word “proprietary” as a part of explanations designed to cover up an underlying fraud, discourage investors from asking questions or to make an opportunity appear to be unique. Such explanations often also include the words “secret” or “algorithm.”
The Sepero scam gleaned more than $4 million, and Sepero and others spent investor money on credit card bills averaging about $25,000 per month, prosecutors said.
Here is how other money was spent, prosecutors said.
- Bar tabs of approximately $18,241, including a $4,000 tip at Drai’s Hollywood nightclub in Los Angeles.
- Luxury hotel rooms for tens of thousands of dollars, including suites costing more than $4,000 at W Hotels in New York.
- Flights to Paris, Los Angeles, Chicago and elsewhere.
- A customized Ford F-350 “Harley-Davidson Edition” pickup truck costing more than $80,000.
- A Mini Cooper automobile.
- A leased a BMW.
“Sepero also spent victims’ money on other personal expenditures, including mortgage payments, home improvements, meals at high-end restaurants, jewelry and limousines,” prosecutors said.
The hedge-fund scam also included the mailing of false statement to customers and emails sent by “Mel Tannenbaum,” whom prosecutors described as “a fictional character of the conspirators’ invention.”
And bogus “screen shots” also were used to dupe investors, prosecutors said.
“Sepero and others also emailed to several investors ‘screen shots’ of a computer-based trading program, which they claimed represented the investors’ funds being traded in the currency markets,” prosecutors said. “In reality, the shots reflected trading in fictional accounts set up by the co-conspirators to dupe investors.”
In the scam targeting the senior citizen in poor health, Sepero took charge of her annuity account” and drained it down to less than $17 while making the woman’s family believe the account contained more than $750,000.
The woman was a widow, and Sepero “convinced her to write checks to entities that Sepero controlled,” prosecutors said. “Sepero promised to add the money to the annuity account, but instead spent hundreds of thousands of dollars for his personal use.”
