The SEC obtained a court order freezing the assets of a Chicago-area money manager and his advisory firm, charged with lying to prospective investors.  Belal Farukia is charged with soliciting "highly sophisticated" individuals to invest in his hedge fund advisory firm managed by Neural Markets LLC. Allegations of the Scam. The "Evolution Quantitative 1X Fund" was claimed to use a proprietary algorithm to run an arbitrage strategy involving liquid exchange-traded funds.  Faruki allegedly falsely represented:

• The existence of investor capital, which he and Neural Markets claimed had topped $5 million in investments.
• That trading was generating profits.  The fund was actually losing cash.
• That he was making investors rich.  At the time he made these statements he had no investors in the fund.
• The amount of losses being incurred.  Faruki misstated that he'd hired a top-tier auditor to compile earnings reports and financial statements.
• That he'd invested his own money in the fund to show he had investor's interests at heart.

The Bust. Faruki and Neural Markets bilked a lone investor out of $1mn before confessing the losses.  The investor went to the SEC after unsuccessfully trying to recover funds on his own.  Faruki allegedly threatened he would use the investor's funds for legal defense if the investor went to regulators for help. Faruki and Neural Markets were in the middle of soliciting more wealthy investors when the SEC obtained a court order to halt their actions.  The investigation is ongoing.  [SEC, 8/31/11]