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NEWSLETTERS & ALERTS
Ponzi-Like Scheme by Westchester Adviser
by Howard Haykin
Yet, by June 2017, Michael Scronic had less than $27,000 in his brokerage account and, by early 2018, the SEC and the U.S. Attorney for the Southern District of New York had caught up with him. The SEC seeks disgorgement and civil penalties; federal attorneys announced criminal charges.
SEC FINDINGS. Scronic, 46, who resides in Pound Ridge, NY, was a registered rep with Morgan Stanley from 1998 to 2005. He received a bachelor's degree from Stanford and a Master's degree from University of Chicago.
According to the SEC, Scronic engaged in a Ponzi-like scheme and made material misrepresentations to investors and potential investors in his fictitious, unregistered hedge fund, ‘Scronic Macro Fund’. His plan was to invest primarily in a risky options trading strategy involving equity and index options and options on futures contracts - and he told one investor that "what's cool about my fund is that I'm [sic] only in publicly traded options and cash so any redemptions are met within 2 business days so if you do need to withdraw for your business needs it will be quick and painless."
Yet, from April 2010 to August 2017, Scronic sustained net investment losses of $15.8 million - experiencing losses in 79 out of the 89 months. He also had withdrawals of $2.9 million - which in part covered personal expenses. To cover up his losses and funds shortfalls, Scronic sent materially false quarterly updates to existing investors, representing substantial gains on their investments. For example, as of June 30, 2017, he reported total assets of $21,837,475. In reality, the brokerage account held less than $27,000; by July 31, there was less than $6,000.
With little cash left in his investment account and unable to attract new investors, Scronic resorted to a desperate stream of excuses for why he could not repay them. At that point, several investors reported Scronic to federal authorities.
[For further details, click on … SEC Complaint.]