DETROIT, Michigan: A Detroit-area hedge fund has been accused of a $39 million fraud by the U.S. Securities and Exchange Commission.
In court filings last week, the Securities and Exchange Commission accused Andrew M. Middlebrooks, the owner of EIA All Weather Alpha Fund I Partners LLC, of “allegedly engaging in a multi-year scheme that included the misappropriation and misuse of investors’ funds,” according to the federal agency.
Middlebrooks, according to regulators, radically misstated the types of returns investors would see. The reality was that the fund was taking on multimillion dollar losses, said regulators.
The court granted the government emergency relief, including a temporary restraining order against EIA and Middlebrooks. The court also allowed the government to freeze the assets of the hedge fund.
The 30 year-old Middlebrooks lived in the Detroit-area until relocating to Dallas, according to the complaint, which notes that Middlebrooks “repeatedly asserted his Fifth Amendment right against self-incrimination” while being questioned by investigators.
Online, Middlebrooks’ EIA lists its company address as a home in Detroit.
In written statements, the government alleges that over the last five years Middlebrooks’ long and short equity position hedge fund took in $39 million from over 100 investors, while making “numerous false and misleading statements to the fund investors and prospective investors, wildly misstating the Fund’s performance and claiming that its financials were audited, when they were not.”
According to the complaint, Middlebrooks’ fund was claiming returns of greater than 2,500 percent. However, “In reality, the Fund suffered catastrophic trading losses of approximately $27 million.”
“As we allege in the complaint, Middlebrooks lured investors by touting extraordinary performance returns and then concealed the truth of his fraud, including by fabricating documents provided to investors,” stated C. Dabney O’Riordan, co-chief of the SEC’s Asset Management Unit. “Our swift action is intended to protect investors from future harm.”