Tuesday, May 17, 2011

Another apparent Encinitas Ponzi scheme: John Clement

What is it with Encinitas and Ponzi schemes? First Scott Bottolfson and now this:

The Securities and Exchange Commission filed an emergency enforcement action to halt a fraudulent scheme being conducted by John Clement of Encinitas, Calif., and his company Edgefund Capital LLC.

The SEC alleges that Clement ran a purportedly profitable day trading business out of his home and raised at least $2.1 million since August 2008 from 22 investors in the San Diego area. Clement hyped the profit potential by falsely promising returns of 1 to 2 percent per month to investors in his hedge funds (The Edgefund, LP and The Edge Fund Ltd., LP). He falsely claimed that the risk potential was limited because of his purported 5 percent stop-loss rule, and he falsely assured investors that they could request a return of their investments at any time upon written request. The SEC alleges that Clement has misappropriated and misspent all of the investor funds.

The Honorable Larry A. Burns, U.S. District Judge for the Southern District of California, granted the SEC’s requests for an immediate freeze of the assets of Clement and Edgefund Capital and an order prohibiting Clement and Edgefund Capital from destroying evidence. The court will hold a hearing on May 16, 2011, on the SEC’s motion for a preliminary injunction.

The SEC alleges that in order to conceal his fraud, Clement sent fabricated account statements to at least one investor that reflected an inflated fund balance of $8.2 million. In fact, the hedge fund accounts at that time were not even funded. Beginning March 29, 2011, Clement began telling investors that an SEC investigation had impacted his ability to communicate with them, frozen his bank accounts, and blocked his securities trading activities. Although the SEC was investigating Clement’s operations, he lied in his other assertions to investors.

I guess it's that Encinitas is a great place to live, so when scammers get their hands on Other People's Money, they use it to fund the Encinitas lifestyle. Or maybe Encinitas living is so expensive that it pushes people to fraud.

Any time somebody tells you he makes a living day trading, ask to see his tax returns. Most self-proclaimed "day traders" have other assets or income and just call themselves "day traders" because it sounds cooler than "trust fund baby" or "disability malingerer."

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