A one-time Detroit hedge fund manager has been charged with defrauding investors to the tune of more than $27 million, according to a news release from the U.S. Department of Justice.
The office of Dawn Ison, U.S. attorney for the Eastern District of Michigan, on Wednesday announced it had charged 30-year-old Andrew Middlebrooks of Dallas with one count of wire fraud.
From May 2017 until May 2022, Middlebrooks, the CEO, chief investment officer and portfolio manager of EIA All Weather Alpha Fund 1 Partners “solicited clients for EIA by telling them he was able to exploit ‘inefficiencies’ in global equity markets which would result in large returns for investors,” according to the news release from the U.S. Department of Justice.
“From the beginning of the scheme to defraud, however, EIA’s fund failed to produce the predicted returns and suffered catastrophic losses.”
Attempts by Crain’s on Wednesday to seek comment from Middlebrooks were unsuccessful.
The case against Middlebrooks — who was a resident of Detroit, according to a court filing — was brought in federal court in Detroit.
“Middlebrooks used an apparently legitimate company, sophisticated methods, and a complex web of lies to deceive his victims, but his crime amounts to nothing more than theft and unbridled greed. Middlebrooks’s ability to convince the victim-investors that his false promises were true allowed him to steal their money,” Ison said in the release. “Today’s charge demonstrates our commitment to ensure the integrity of our financial systems.”
The U.S. Securities and Exchange Commission had previously alleged fraud by the hedge fund manager back in May, as Crain’s reported at the time.
Specifically, the court documents state that last February, Middlebrooks told investors that EIA had generated positive returns in 2020 of more than 135 percent. In reality, the fund incurred losses that year of over $13 million.
“Also, in furtherance of the scheme to defraud, Middlebrooks lied to investors about how their money would be used,” according to the court filing. “Middlebrooks told investors their money would be used exclusively for trading and money used for fees and expenses would be disclosed in accordance with EIA’s investment agreement. In fact, Middlebrooks took money from the fund for living expenses, and transferred money from the fund to his wife’s business.”
The DOJ release says the charge carries penalties of up to 20 years in prison, a $250,000 fine, and up to 3 years supervised release.
The investigation into Middlebrooks’ alleged fraud was conducted by the FBI.
“Mr. Middlebrook allegedly lied to and stole money from investors and potential investors by providing false financial statements and inflating the fund’s returns,” stated James Tarasca, special agent in charge of the FBI’s Detroit Division. “This case is an example of the FBI’s commitment to work with our partners to investigate those engaged in financial fraud and to protect the financial well-being of honest, hard-working Americans.”
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