The SEC barred a "hedge" fund manager from Connecticut after it discovered that he lost $1.8 million of his client's assets after participating in "risky investment practices", which is a polite way of saying losing 88% of their money in about three days.
Matthew Rossi and Fairfield, Conn.-based SJL Capital defrauded clients by misleading them about the nature and performance of the fund's investment strategy, according to a cease and desist order from the SEC. Rossi was the founder, managing partner and 80% majority owner of the fund.
The SEC's order said that Rossi told investors his fund would invest in a diversified portfolio of publicly traded equities. He also claimed that the fund had a highly successful proprietary algorithm, called MarketDNA, that had been refined over 20 years and included stop losses to limit downside risk.
Instead, the SEC alleges that Rossi "engaged in risky, unhedged options trading, which did not comport with the purported MarketDNA strategy and did not include any safety valves or stop loss limits."
The strategy of unhedged options trading seemed to work out fine... at first. In June 2016, Rossi used the fund's assets to buy a series of put options that wound up returning him 101% that month. The fund had additional gains of 15% in July and reached its peak valuation of more than $1.3 million at the end of the month.
But the fund's success ran out in August 2016 when it lost 88% of its value in days due to the same options "strategies".
On August 19, Rossi sold short dated Amazon calls that resulted in a loss of over $600,000. Within minutes of closing that position, Rossi bought Amazon call options, in addition to Priceline call options, and lost over $68,000 when he sold the Amazon options on August 22.
By November 2016, the fund had been completely wiped out.
Then, instead of making a long, drawn out video explaining the losses like the fine folks at OptionSellers.com did, Rossi hid the extent of the losses from investors by making fake account statements and tax documents that falsely described the fund's assets and returns generated by the supposedly successful strategy.
The SEC claims that clients invested nearly $1.8 million with him and when they found out about the losses, Rossi made up a story that they were due to a "rogue trader" who had been making trades on his behalf while he was undergoing knee surgery and couldn’t work. As a result, the SEC has barred Rossi from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization.