President and CCO of Prophecy Asset Management Charged by SEC in Multi-Year Fraud Concealing Losses of Hundreds of Millions

In an important development, Securities and Exchange Commission The charges have been brought against John Hughes, the president and chief compliance officer of Prophecy Asset Management LP. He is accused by the FBI of orchestrating an elaborate fraud scheme that lasted for several years and resulted in hidden losses of hundreds of millions of dollars to investors.

Allegations Overview

Prophecy Asset ManagementThe controversy surrounds, which advises multiple hedge funds, boasting more than $500 million of assets under management. Hughes is accused of:

  • Intentionally misleading investors, auditors and administrators about the trading strategies of funds, their risk levels and performance.
  • Unlawfully earning more than 15 million dollars in fees.

Hughes assured investors that they would be protected by robust risk management. However, most of the capital went to one sub-advisor, which resulted in significant trading losses.

Method of Deception

Hughes’s method involved more that just false representation. How did Hughes pull it off?

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  • The funds were invested in illiquid securities, increasing the losses.
  • Hughes created false documents to hide his dire financial situation. He also arranged phony transactions.

Hughes and Hughes’ firm decided to stop investor redemptions until further notice. By 2020, losses were estimated to be over $350million.

Hughes’ legal case is intensifying.

  • Hughes’s complaint to the SEC seeks a variety of remedies, including a permanent court order, monetary fines, and an injunction against him serving as an officer or a director.
  • Concurrently, both the U.S. Attorney’s Office for the District of New Jersey The criminal case has been filed.

Burk Burnett and Julia C. Green are leading the SEC investigation, under the supervision of Regional Director Nicholas P. Grippo (and Associate Regional director Scott A. Thompson). John V. Donnelly III will lead the litigation.

You can also read our conclusion.

This case serves as a sobering warning about the risks of investing and the crucial role that regulatory agencies like the SEC must play to protect investor interests. This case highlights the importance of investors exercising due diligence before entrusting funds to management companies.

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