A man from Staten Island has been charged for duping investors into paying into his fake hedge fund, as well as for a variety of other securities frauds and using the money to fund a Caribbean vacation, the Securities and Exchange Commission announced Friday.
Anthony Coronati, 45, pretended to be an investment adviser at an imaginary hedge fund called the “Corsac Fund,” sending letters to potential investors assuring them that the Corsac Fund’s managers “are looking for 30% return with minimal risk.” The SEC found that at least 11 people invested in this fund, whose money Coronati used for his own personal expenses. This worked for about four years, from 2008 to 2011, by which point the investments started to dry up.
Coronati changed tactics, deciding to offer investors shares in Corsac at $5 a share. “Coronati told investors that Corsac would itself hold an IPO [Initial Public Offering] by the third quarter of 2012 and that the IPO share price would be much higher than $5,” the SEC order explains. “For example, he told at least one investor that Corsac’s share price would reach $30. In fact, as Coronati knew, he had no basis for representing that Corsac would soon hold an IPO or that its stock would soon be worth many times the price investors had paid.”
He hoodwinked at least six people this way, again using their money for his own purposes, and occasionally “making Ponzi-like repayments to certain investors in the Corsac Fund.”
He shifted strategies again in early 2012, when he started telling investors that a different company he owned, Bidtoask, “would invest directly in pre-IPO Facebook shares without charging any fees, commissions, or markups to investors.” While this company actually did exist, “Bidtoask’s Facebook-related investments actually did require the payment of significant fees that Coronati and Bidtoask concealed from investors.” He tricked 44 investors this way, earning $1.75 million in the process — $100,000 of which he used for his own purposes.
“Bidtoask invested the remaining $1.65 million in two investment funds [the ‘Facebook Funds’] that held genuine pre-IPO Facebook shares. As Coronati knew, the Facebook Funds charged Bidtoask fees — undisclosed to Bidtoask investors — that reduced BidToAsk’s investments in the Facebook Funds to less than $1.55 million. … The Facebook Funds distributed Facebook shares to Bidtoask, commensurate with its $1.55 million investments. Coronati and Bidtoask sold most of the shares and distributed the proceeds to Bidtoask investors. However, Coronati diverted some of the shares to his personal brokerage account, sold them at a loss, and misappropriated the proceeds,” the SEC found. Three of the investors were given no proceeds at all.
He also promised to invest in pre-IPO shares in other well-known tech companies, like Apple, even though he knew these companies did not have IPOs pending and that his company didn’t even hold any shares in them. He raised funds from ten investors with these lies, and, in the words of the SEC, “simply misappropriated the funds for his own purposes, including for personal expenses such as a Caribbean vacation and plastic surgery.”
As the SEC explains on its website, “‘Pre-IPO’ investing involves buying a stake in a company before the company makes its initial public offering of securities. Many companies and stock promoters entice investors by promising an opportunity to make high returns by investing in a start-up enterprise at the ground floor level — often a new company that claims to be related to the Internet or e-commerce. But investing at the pre-IPO stage can involve significant risk for investors. And pre-IPO offerings targeted at the general public — especially those that are publicized through ‘spam’ e-mails — are often fraudulent and illegal.”
To hide the fraud from his increasingly suspicious investors, Coronati continued to make occasional Ponzi-payments, and even fabricated an account statement for one of his investors. “The statement purported to show that the investor’s position in the Corsac Fund was worth over $120,000 and that over 80% of the Corsac Fund was invested in well-known public companies such as Apple Inc. The account statement was entirely fictitious. As Coronati knew, the Corsac Fund never existed and, as of late 2013, neither Coronati nor the Corsac Fund held any of the securities listed on the statement.”
By 2013, the SEC had caught wind of Coronati, and filed subpoenas against him, in July and October. He ignored both of them. In November, the SEC got a judge to order Coronati to comply with the subpoenas — he ignored her too. It wasn’t until January 2014 that a different judge issued an order holding Coronati in contempt, “ordering him to pay certain costs and fines to the Commission, and directing the United States Marshals Service to arrest Coronati.” Six months after the initial subpoena, Coronati was finally arrested.
“Despite Coronati’s repeated attempts to defy SEC subpoenas and impede our work, the SEC investigative staff doggedly pursued the case and gathered the necessary evidence to bring this enforcement action that makes it possible to return stolen funds back to investors,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.
Now he has to pay back $400,000 in funds stolen from investors, which the SEC says will be placed in a “Fair Fund” for distribution. He has also been permanently barred from the securities industry.