This past Friday the sole managing member of Westgate Capital Management LLC (the “Fund”), James Nicholson, pleaded guilty to securities fraud, investment adviser fraud and mail fraud which are subject to the following maximum penalties:
The fraud allegedly began back in 2004 with Nicholson falsely representing to investors that Westgate’s funds had assets under management ranging from $600 million to $900 million, when in fact only about $50 million to $60 million were actually invested. These misrepresentations came to light last December when checks totaling around $5 million for nearly two dozen investors bounced during their attempt to redeem. Prosecutors and Nicholson himself admitted that:
- financial records were falsified,
- no legitimate and independent accounting firm auditing the Fund existed,
- there was no actual office verifiable for the supposed auditor
Had a thorough due diligence check on the Fund and Mr. Nicholson been conducted earlier on, perhaps investors may have been spared the $133 million loss that occured as a result of Mr. Nicholson’s fraudulent activities.
