In the aftermath of the college admissions scandal, some have asked what is the IRR on investing up to $1.2 million in a Yale education. Here is one answer.
Omar Zaki, a recent Yale grad was busted by the SEC on Monday which in a complaint accused the 21-year-old of running a hedge fund, Armitage Capital, while enrolled at the Ivy League university, and claiming to investors that his firm relied on an algorithm that had produced eye-popping returns over a 10-year period (which incidentally means he launched his quant trading career when he was 11).
This was one of many misrepresentations Zaki allegedly made to investors: in reality, not only did the fund never use any algorithm, but the Yale grad also misled investors about how much money he managed and wrongly reported returns in excess of 80% from December 2016 through early March 2017, Bloomberg reported.
The 21 year old economics and physics major told investors he managed up to $5 million, raised $1.7 million from 11 clients from January 2017 to February 2018 by investing in biotech companies. In his ICOBench profile, he also said that “he was an early investor in the crypto space and continues to remain passionate about the space.”
Here is the key section from the SEC’s filing on Zaki’s misrepresentations:
Zaki prepared multiple versions of the Fund’s prospectus dated May 16, 2017, which contained some or all of the following false information: (i) the Fund had trading history dating from December 2016 to April 2017, even though it did not start trading until June 2017; (ii) the Fund had returns in its biotech portfolio in excess of 80% from December 2016 through early March 2017, even though it did not maintain a separate biotech portfolio or conduct any trading at all until June 2017; (iii) the Fund had returns from its SPY algorithm trading ranging from 18% to 114% over a 10 year period, even though the algorithm was not available to the Fund prior to 2017 and was never deployed; (iv) the Fund deployed a foreign exchange trading strategy on April 1, 2017, that had positive returns, even though it did not engage a foreign exchange trader until April 29, 2017, and the trader was never able to deploy his strategy; and (v) Individual A and others were among the Fund’s management, even though Zaki was solely responsible for its management and operations. Zaki also claimed that a portfolio manager joined the Fund in December 2016, even though the individual was not affiliated with the Fund until May 2017
* * *
Zaki made several additional misrepresentations to Investor A. On October 21, 2017, Zaki sent messages to Investor A, falsely claiming the value of Investor A’s Fund investment had grown 30% in two months. To support his statement, Respondent provided a screenshot showing what he purported to be Investor A’s account value. At the time that he sent the message, Zaki knew that the screenshot included other investors’ funds.
The next trading day, the account value dropped significantly. Zaki took repeated steps to conceal investment losses from Investor A. For example, on October 25, 2017, Respondent provided Investor A with a trading log that contained false information about theFund’s trading history, including listing securities that the Fund did not trade and false purchase and sale prices to inflate the Fund’s returns.
In other words, he was your garden variety member of fintwit.
Zaki settled the SEC’s allegations without admitting or denying its findings, agreeing to pay a $25,000 fine, which the SEC is letting him pay in installments of $2,083.33 over three years. As part of the SEC settlement, the young “investor” agreed to a bar on working as an investment adviser, with the right to reapply after three years.
So had Zaki’s parents spent $1.2 million on his Ivy league education what would they have gotten, besides a rap sheet of course? Nothing much: in the settlement, the regulator said Zaki is currently unemployed.
The SEC’s full complaint is below (link).
via ZeroHedge News https://ift.tt/2VaFPRh Tyler Durden