Chicago’s Madoff? – (Alleged) James Brandolino Hedge Fund Ponzi
Continuing in the great spirit of Chicago crime and fraud, a former Chicago hedge fund manager was arrested on fraud charges today. Hedge fund manager James Brandolino turned himself in for allegedly running a Ponzi scheme via which he stole more than $3.5 million from approximately 48 victims.
Brandolino was charged with mail fraud in a criminal complaint filed in U.S. District Court. The announcement was made by Patrick J. Fitzgerald, United States Attorney for the Northern District of Illinois; Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and Thomas P. Brady, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago.
Brandolino is 42 years old and a currently resident of Joliet, Illinois – the same place famous Blues Brother “Joliet” Jake Blues is from. He had been running the Ponzi scheme since 2003. Brandolino claimed to be running a managed futures strategy as commodity pool adviser (“CPO”).
Throughout the life of the Ponzi scheme he kept it going by providing about $1.1 million in investor redemptions. He then lost half of the money through poor trading decisions – no crime there. The problem, in part, was that Brandolino allegedly told investors that their funds, minus a commission, was being used to trade futures contracts, and always told that his trades were profitable, even though often it was not. This claim of constant (or almost constant) steady profitability is a familiar red flag reminiscent of many recently uncovered frauds and Ponzi schemes, including Madoff. Brandolino also allegedly lied about his assets under management in investors statements. In October 2010 he claimed to have $7.5 million under management.
It is also alleged that Brandolino misused most of the remaining funds for his own benefit. It is unclear exactly what he spent the money on as his only remaining assets consisting of a luxury automobile, a watch and an interest in an unfinished condominium in Greece on which he put down 80,000 Euros, or more than $107,000.
Interestingly, Brandolino has previously held various National Futures Association registrations in the commodities brokerage business, (including exchange floor trading privileges at the Chicago Board of Trade (now CME Group). Here’s the link to his NFA broker report. Brandolino was previously a principal of several commodities trading businesses, including Brandolino Investment Group, Falcon Capital Partners LLC, Lloyd Lewis Capital, Inc., Falcon Trading Group, Inc. Here’s the link to his Twitter account.
Apparently all you need to do is watch this video to become a commodities broker…
Another operational due diligence red flag was the generation of false investor statements. Between 2003 and 2007, Brandolino allegedly accepted approximately $1.5 million from roughly 20 investors and generated false statements showing steady returns even though by mid-2007 he had lost most of the money through bad trading decisions.
In mid-2007, he started a commodity pool known as Falcon Stock Index LP, without disclosing that he had previously defrauded investors. When this fund closed in July 2008, Brandolino allegedly traded equity index futures and earned actual net returns of about 15.5%, but didn’t tell any of his investors that he had stopped trading in mid-2008 and failed to return their money, according to the charges. The government is being represented by Assistant U.S. Attorney Samuel B. Cole.
Brandolino appeared this afternoon before U.S. Magistrate Judge Michael Mason and asked to remain in federal custody. He’s probably safer in custody then on the streets where defrauded investors may want to have a word with him….
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