On Monday, February 11, 2013, a New York fund manager was arrested on charges that his fund, Absolute Fund LP, was at the center of a $2 million Ponzi scheme. The fund manager, Jason J. Konior, is accused of stealing from three different hedge fund investors. He allegedly promised to match their investments in his fund by up to nine times. Konior is the founder and manager of several related business entities in New York, which are collectively referred to as “Absolute.”
The criminal complaint against Konior is dated February 7th. According to investigators, Konior had told prospective investors in his fund that Absolute Fund LP would provide “trading leverage to new and emerging hedge funds.” He further stated that he would put the investments and the amount that he was matching into brokerage accounts that they could then use to trade securities. This was part of Absolute’s “first loss” investment program. If an account lost money, the hedge fund investor was responsible for the losses. These losses were capped when the initial contribution ran out. If the account earned profits, the proceeds were to be split between the individual investor and Absolute Fund LP.
According to a statement by the U.S. Attorney’s Office for the Southern District of New York, Konior had repeatedly indicated that he was setting up brokerage accounts for the three hedge fund investors, when in reality he had already stolen the money. Konior made these statements through emails, text messages, and telephone conversations. After repeatedly failing to set up the account, the manager of one of the hedge fund investors sent a text message to Konior demanding his money back and threatening to report Konior to the U.S. Securities and Exchange Commission. Konior responded, through text, that the money was in the account when in fact it had already been spent.
Rather than honor the terms of this arrangement, federal prosecutors involved in the arrest assert that Konior instead used the $2 million that he received from his investors for his own personal and business expenses. He also used the money to cover redemption requests from earlier investors. The Ponzi scheme allegedly lasted from late 2011 through May of 2012.
Konior, who is 39 years old and lives in Manhattan, now faces charges of securities fraud and wire fraud. If convicted, he could face up to 20 years in prison on each count. He also faces potential fines of $5 million or twice the gross gain or loss from the offense. The fine for the wire fraud charge is a potential $250,000 or twice the gross gain or loss from the offense. Konior is represented by Douglas Jensen of the law firm Park & Jensen LLP. He will appear in Manhattan federal court on Wednesday. U.S. Magistrate Judge James Cott will oversee the proceedings. This is not the first time that Konior has faced legal troubles regarding his fund. In May of 2012, the U.S. Securities and Exchange Commission brought a case against him, alleging that he similarly lied to his investors.
The case against Konior was brought in connection with President Barack Obama’s Financial Fraud Enforcement Task Force. The goal of the task force is to wage “an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes.” The task force has representatives from several federal agencies as well as state and local law enforcement.