Thursday, January 23, 2020

Founder Of Meridian Capital Asset Management Sentenced To Two Years In Prison For Stealing Over $1 Million Of Investor Funds


 Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced that JOHN GERACI was sentenced today in Manhattan federal court to 24 months in prison for conspiring to commit securities and wire fraud.  GERACI participated in a scheme to defraud investors in his company, Meridian Capital Asset Management.  GERACI caused two clients (“Victim-1” and “Victim-2”) to invest in a hedge fund through his company called the Meridian Matrix Long Short Fund (the “Meridian Matrix Fund”).  Between in or about December 2015 and November 2016, GERACI provided fictitious account statements and updates to Victim-1 and Victim-2, telling them that their investment was worth millions when, in reality, GERACI knew that large portions of it had been stolen by the Meridian Matrix Fund’s  co-founder, Nicholas Mitsakos.  GERACI eventually liquidated the Meridian Matrix Fund and misappropriated significant portions of the remaining funds.  Although GERACI had stolen over $1 million of Victim-1 and Victim-2’s investment for himself, GERACI falsely told them that their entire investment had been taken by Mitsakos.  GERACI used the stolen money to pay his own personal and business expenses. 
GERACI pled guilty on October 3, 2019, and was sentenced by United States District Judge Alison J. Nathan.
U.S. Attorney Geoffrey S. Berman said:  “John Geraci lied to his clients about their investment with Nicholas Mitsakos, and later concealed that he had recovered a significant portion of their investment from Mitsakos.  Now Geraci, like Mitsakos before him, is headed to prison.”
According to the Complaint, the Indictment, and other statements made in open court:
GERACI was the principal and founder of Meridian Capital Asset Management.  In or about February 2015, GERACI was introduced to Nicholas Mitsakos, who purported to operate a hedge fund called Matrix Capital (“Matrix”).  Mitsakos told GERACI that Matrix had tens of millions of dollars under management and had achieved annual returns between 19.4% and 66.3% from 2012 to 2014.  GERACI and Mitsakos subsequently entered into an arrangement whereby GERACI would raise money for Mitsakos, Mitsakos would manage that money through a new vehicle, the Meridian Matrix Fund, and GERACI and Mitsakos would then split any fees that the Meridian Matrix Fund generated.  As part of this arrangement, GERACI solicited Victim-1 and Victim-2 to invest approximately $2 million in the Meridian Matrix Fund, in large part by relying on Mitsakos’s claims about his supposed fund’s assets under management and performance returns.
By in or about December 2015, however, GERACI learned that Mitsakos had only invested approximately $1.2 million of Victim-1 and Victim-2’s investment, and had misappropriated significant portions of the remaining money.  GERACI also learned that Mitsakos never had any actual assets under management, and that his performance returns were accordingly fictitious and misleading.  Nonetheless, GERACI never told Victim-1 or Victim-2 that their investment was in jeopardy or had been solicited with misleading information.  To the contrary, GERACI sent Victim-1 and Victim-2 updates that hid Mitsakos’s misappropriation and falsely claimed that their investment had appreciated.  GERACI sent these fictitious updates even after GERACI had liquidated the Meridian Matrix Fund’s trading positions in or about June 2016.  Beginning in or about November 2015, GERACI also misappropriated hundreds of thousands of dollars of Victim-1 and Victim-2’s money for himself. 
In or about August 2016, Mitsakos was charged in this District with securities fraud and other offenses.  In or about September 2016, GERACI changed course:  Instead of providing fictitious account updates to Victim-1 and Victim-2, GERACI told them, in substance and in part, that their entire investment had been wiped out through Mitsakos’s fraud.  GERACI did this even though he had ultimately received approximately $1.1 million of Victim-1 and Victim-2’s investment back from Mitsakos, including after liquidating the Meridian Matrix Fund’s trading positions.  Rather than returning this amount to Victim-1 and Victim-2, GERACI used it to pay for his own personal and business expenses, including, for example, payments on a BMW automobile, a gym membership, gas, groceries, travel expenses, and his cellphone bill.
In addition to sending false account updates to Victim-1 and Victim-2 even after learning that Mitsakos had lied about his fund’s assets and performance and that Mitsakos had stolen significant portions of Victim-1 and Victim-2’s investment, GERACI continued to try to raise money from others for an investment related to the Meridian Matrix Fund.  In attempting to do so, moreover, GERACI relied on the same representations about Matrix’s assets and performance that he knew to be false.   
Mitsakos pled guilty to conspiring to commit securities fraud and wire fraud on May 25, 2017, and was sentenced on November 7, 2017, to 30 months in prison by the Honorable Denny Chin, a judge on the United States Court of Appeals for the Second Circuit who was sitting by designation in the Southern District of New York. 
In addition to the prison sentence, GERACI, 62, was sentenced to three years of supervised release.  The Court further ordered GERACI to forfeit a sum of $1,098,971.38 and to pay restitution to the victims of the offense.
Mr. Berman praised the investigative work of the United States Postal Inspection Service and thanked the Securities and Exchange Commission for its assistance. 

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