A local hedge fund manager has been charged with defrauding scores of Maryland residents of millions of dollars after he solicited their money at free lunch seminars and hid losses with fake statements, the state attorney general's office said yesterday.
John H. Williams of Upper Marlboro violated eight civil statutes of state security laws, Attorney General Douglas F. Gansler said. The assets of Williams's firms were frozen by Prince George's County Circuit Court.
Williams became involved in the scheme after meeting a Canadian hedge fund trader, Stephen Chesnowitz, in an Internet chat room, according to a court filing by Gansler's office.
Over the past two years, the two traders sent out mass mailings advertising a free "gourmet meal" and the opportunity to "earn excellent returns with a guarantee against market risk." More than 150 people, mainly from Montgomery and Prince George's counties, attended the seminars and gave Williams a total of $9 million. He transferred the money to Chesnowitz's hedge funds in Canada and the Cayman Islands.
Despite their guarantee, Williams and Chesnowitz delved into one precarious investment after another, including a financial firm that is now bankrupt, a bed and breakfast in Canada, and two vintage cars, according to the court filing. Investors were never told about those deals.
Investors could log onto a Web site to check how the hedge funds were doing, and online statements showed that their investments were profitable. But that was not true. On April 28, 2006, alone, the hedge fund piled up $626,380 in losses, the filing said.
Chesnowitz has not been charged, but Maryland officials said they are looking into his activities. Their investigation could be hindered because Chesnowitz and his companies are not based in the United States.
Hedge fund traders typically charge fees worth 20 percent of profits. But Williams, "knowing the money was gone . . . continued to take fees" based on phantom returns, the court filing said. In total, Williams paid himself $586,000 for managing the investments.
Maryland officials said they are trying to figure out how much Williams lost in his trades and whether there is anything left to return to investors. Most of the money has been transferred out of the country to Chesnowitz's firms.
Williams's home in Upper Marlboro is also the headquarters for one of his investment management companies, LaJon Corp. No one answered phone calls made to that address. The other companies were LaJon Capital Management, LaJon Capital Advisors and LaJon Capital Fund, the complaint said.