Hedge Fund Accused In $10M Ponzi Scheme; Fake Tech Shares Fund Execs' Luxury Lifestyle
SAN FRANCISCO (CBS SF) -- A phony hedge fund made millions in a Ponzi scheme selling investors fake pre-IPO shares of technology companies, including Uber, Airbnb and Alibaba, according to a grand jury indictment.
The U.S. Securities and Exchange Commission is accusing JSG Capital Investments' CEO and founder Jason Gill - who also goes by the name Jaswant Singh Gill - and his colleague Javier Carlos Rios of raising almost $10 million from nearly 200 investors by falsely claiming to purchase shares of tech companies before their initial public offerings.
Gill, Rios and at least two alleged co-conspirators at JSG Capital instead spent the money that investors gave them on excursions to gentlemen's clubs, Las Vegas casinos and professional sporting events, while paying small amounts of money to investors to stymie any suspicions, according to the SEC complaint filed this week.
Gill, Rios, and JSG Capital Investments are not registered with the SEC or any state regulator. Both men have been arrested on charges of fraud and conspiracy.
On Friday morning, JSG Capital Investments had a professionally designed website which featured bios of its top executives. By Friday afternoon, the website was not accessible.
The firm, which also has a Bloomberg business profile, has not responded to CBS San Francisco's emails or phone calls requesting comment on whether the firm has had any legitimate dealings since it opened for business in 2006.
One individual listed on the JSG website, who asked not to be identified for the sake of his family's privacy, told CBS San Francisco on Friday that while he was a founding partner and worked with the firm from 2008 to 2015, he was not actively participating in the firm's investment activity.
He told CBS San Francisco Friday afternoon that he met Gill through friends in the Bay Area and that he hadn't even heard about the charges.
"Oh my gosh," he said. "That's absolutely asinine."
He said he didn't even know his name was on the firm's website and would try to get his name off of the site. He also said he would be contacting an attorney.
Moments after that conversation, JSG Capital's website went offline.
The SEC maintains that the company falsely claimed to have $25 million in assets under management and was based in San Francisco. The SEC said the firm's street address, 255 California St., was unverifiable.
A doorman at that building told CBS San Francisco that he had worked there for years and had never heard of a firm called JSG Capital Investments.
A federal grand jury filed a criminal indictment last week alleging Gill and Rios stole investor funds for their own personal use and benefit, the U.S. Attorney's Office of the Northern District of California announced Tuesday.
The indictment alleges that they transferred investor funds to their personal bank accounts and used those funds for personal expenses including rent, restaurants, nightclubs, hotels, and shopping excursions.
Gill, in particular, touted his credentials on the firm's website and on his Linkedin account, but the SEC says his credentials don't check out. The SEC states that Gill's age is unknown, as he uses multiple birth dates and Social Security numbers.
On the JSG Capital website, Gill is described as a Bay Area native who worked at Morgan Stanley after receiving an undergraduate degree from the University of California at Berkeley and an MBA from Cal's Haas School of Business.
UC Berkeley spokeswoman Pamela Tom told CBS San Francisco Friday, "According to our university database and Haas' alumni department, Jaswant Singh Gill is neither a Berkeley-Haas nor a UC Berkeley graduate. We checked both names provided."
Gill also claimed to have "close ties to venture capitalists at Sequoia Capital, Kleiner Perkins Caulfield & Byers, Benchmark, Andreessen Horowitz and GGV Capital," the firm's website stated. The SEC says neither defendant had ties with those venture capital firms.
Rios's background is in food service and Gill never worked at Morgan Stanley, according to the SEC complaint.
The SEC claims the firm, since at least 2013, offered phony shares of companies, including shares in Alibaba, before the company went public in 2014 for a record-breaking $25 billion IPO.
"JSG is a classic investment scam and Ponzi scheme. Gill and Rios transferred less than 1 percent of investor funds to JSG Entity brokerage accounts, and no 'pre-IPO' company shares were ever purchased," the SEC complaint states.
The SEC has not only charged the two men and their investment firm with operating a Ponzi scheme by claiming to invest in hot pre-IPO stocks, but has also obtained a court-ordered asset freeze against the men and the firm to stop potential investors from giving the firm more money.
Jina L. Choi, director of the SEC's San Francisco Regional Office alleges that the defendants "enticed middle-class investors by promising access to highly coveted investment opportunities they claimed were typically reserved for the rich."
Choi notes that this sort of "exclusivity, exorbitant returns, and exaggerated credentials are all classic hallmarks of a Ponzi scheme..."
Gill and Rios allegedly concealed their fraud by paying earlier investors "interest" or lulling payments, using more recent investor funds "in a manner that was consistent with a classic Ponzi scheme," according to the indictment.
The men raised more than $9.3 million in investor funds through JSG Capital and pocketed more than $5.5 million of it, the indictment alleges.
JGS Capital Investments also goes by the names JSG Capital LLC and JSG Enterprises LLC and was taking investors' funds as recently as May 2016.
The SEC notes that another entity, JSG Management Group, LLC, is a relief defendant, or a potentially innocent party, but JSG Management Group, according to the SEC complaint, maintains a bank account into which proceeds raised from defrauded investors are transferred from other JSG Entity accounts by Rios.
If convicted, the defendants each face up to 40 years in prison, asset forfeiture, restitution, fines, and other penalties, according to the U.S. Department of Justice.
By Hannah Albarazi - Follow her on Twitter: @hannahalbarazi.