Brenda Smith, CEO of Broad Reach Capital, has been arrested and charged with defrauding investors of $105 million over the past three years.
Here is an excerpt from a report published in Chief Investment Officer:
Smith, 59, is charged with four counts of wire fraud and one count of securities fraud in the state of New Jersey. Each count can bring a maximum sentence of 20 years in prison. According to court documents, Smith allegedly orchestrated a scheme using her fund Broad Reach Capital from February 2016 to August 2019. Also named as defendants were Broad Reach Capital, Broad Reach Partners, Bristol Advisors LLC, all of which Smith ran, and which the SEC said were “essentially her alter egos.”
She’s accused of lying to investors about the assets and performance of the fund, and falsely stating that she would invest their funds using sophisticated trading strategies that involved highly liquid securities, including those that the fund was supposedly uniquely positioned to use due to its access to the Philadelphia Stock Exchange trading floor.
According to the SEC’s complaint, the vast majority of the funds was moved through the bank accounts of entities Smith controls, and used to make her own personal investments and to repay other investors. It also said she used more than $2 million of the fund’s assets to pay her American Express bills.
The SEC said that to “lull existing investors and solicit additional investments,” Smith provided monthly account statements reflecting high returns and “tear sheets” touting the fund’s supposedly stellar returns. In these tear sheets, the fund claimed that it had annual returns of over 35% and 33% in 2016 and 2017, respectively, as well as a positive return of 6.07% during the first quarter of 2018, and a 1.76% gain in February 2018.
“In reality, the limited funds invested in the trading strategies declined by over 50% in February 2018,” said the complaint. “And, even when the trading strategies were profitable, there was simply not enough money devoted to them to generate the claimed positive returns for the overall fund.”