United States Attorney
Southern District of New York
Tuesday, July 2, 2013
CEO and President of Investment Fund Plead Guilty in New York Federal Court to Orchestrating Nearly $10 Million Dollar Fraud Scheme
Chief Executive Officer Also Pleads Guilty in Connection with Separate Nearly $10 Million Dollar Ponzi Scheme with Pension Plan Funds
Abdul Walji and Reniero Francisco, the chief executive officer and president, respectively, of Arista LLC (Arista), a California investment fund, pleaded guilty today in New York federal court to defrauding and misappropriating nearly $10 million from more than 35 investors by misrepresenting the nature and performance of the fund, and issuing fraudulent account statements to investors to cover up massive losses, announced Preet Bharara, the U.S. Attorney for the Southern District of New York. Walji also pleaded guilty to perpetrating a multi-million dollar fraudulent scheme with pension plan funds that he managed through three California-based trusts: Allied Benefits Inc., Allied Benefits Trust, and Stone Lamm Trust (collectively, the Trusts). Both defendants were charged in December 2012, and pleaded guilty today before U.S. District Judge Denise Cote.
“Abdul Walji and Reniero Francisco told one lie after another in order to squeeze millions of dollars out of their investors, even as they misappropriated nearly $10 million, including at least $2.7 million solely for their own personal benefit,” said U.S. Attorney Bharara. “Walji even went a step further and orchestrated a second scheme that ultimately cost his victims another approximately $9.5 million. With today’s guilty pleas, they will begin to be held responsible for their actions and repay those wronged by their unlawful conduct.”
According to the three-count superseding information to which Walji pleaded guilty, the indictment to which Francisco pleaded guilty, the defendants’ plea agreements and other documents in the public record:
The Arista Fraudulent Scheme
Arista began operations as an investment firm in February 2010, with its principal place of business in Newport Coast, Calif. In April 2011, Arista became a registered commodity pool operator with the U.S. Commodity Futures Trading Commission, and a National Futures Association member.
In early 2010, Walji and Francisco began to solicit individuals to invest in Arista. From 2010 through 2011, the defendants carried out their fraudulent scheme through three methods. First, Walji and Francisco misrepresented to several Arista investors the nature of the company’s investments and the returns that investors would receive from investing in Arista. For example, Walji and Francisco falsely told investors that their money would be invested in safe, risk-free securities, when in fact much of the money was invested in options and futures. Second, Walji and Francisco sent fraudulent account performance statements to Arista investors that misrepresented the value of their investments. In an effort to secure additional contributions, the defendants also concealed Arista’s trading losses, and told investors that they were profiting from their investments when they were actually losing money. Finally, Walji and Francisco misappropriated at least $2.7 million from Arista’s investors through fees to which they were not entitled, and which Walji and Francisco diverted for their own personal benefit. Based on their false representations, Walji and Francisco collected nearly $10 million from over 35 investors, and they ultimately misappropriated a large portion of the money.
From early 2008 through June 2013, Walji also perpetrated a separate fraudulent scheme using pension plan funds that he administered. Similar to the scheme set forth above, Walji executed his fraudulent scheme through three principal methods. First, Walji made oral misrepresentations to existing and potential clients of the Trusts concerning: (i) the nature of the Trusts’ pension plan investments; (ii) the investment value and past performance of the pension plans; and (iii) the source of funds distributed to plan participants who had reached retirement and/or who had requested distributions. Second, Walji distributed fraudulent statements to clients concerning the value of their accounts and the prior performance of their pension plans in order to forestall redemption requests, induce new clients to contribute to the plans, and induce existing clients to make additional contributions. As selected clients reached retirement age or requested disbursements, Walji sent those clients money that he represented to be proceeds of their individual pensions, when in fact he knew that the purported disbursements were often funds contributed by other clients. Third, Walji misappropriated approximately $300,000 of client funds for his personal use. In total, this scheme caused losses to approximately 35 additional victims in an aggregate amount of approximately $9.5 million.
Walji, 60, of San Juan Capistrano, Calif., pleaded guilty to one count of conspiracy to commit securities fraud and wire fraud, one count of commodities fraud, and one count of securities fraud. The securities fraud charge carries a maximum sentence of 20 years in prison; the commodities fraud charge carries a maximum sentencing of 10 years in prison; and the conspiracy charge carries a maximum sentence of five years in prison. Francisco, 57, of Newport Coast, Calif., pleaded guilty to one count of conspiracy to commit securities fraud and wire fraud and one count of securities fraud.
In connection with their guilty pleas, Walji consented to forfeit $13.6 million and Francisco consented to forfeit $4.1 million. The defendants also agreed to forfeit the proceeds of several bank and trading accounts.
U.S. Attorney Bharara praised the investigative work of the FBI and also thanked the U.S. Commodities Futures Trading Commission for its assistance.
This case is being handled by the U.S. Attorney’s Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys David I. Miller and Christopher D. Frey are in charge of the prosecution. Assistant U.S. Attorney Paul Monteleoni is in charge of the asset forfeiture related to the prosecution.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a Co-Chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.StopFraud.gov.