Hedge Fund Manager Sentenced to Prison

A claimed hedge fund manager was sentenced to prison after pleading guilty to conspiracy to commit securities and wire fraud. Defendant Nicholas Mitsakos founded Matrix Capital, a California state registered investment fund in late 2013. Subsequently, Mr. Mitsakos marketed the firm as a long-short fund with a successful track record. U.S. v. Mitsakos, No. 1:16-cr-00631 (S.D.N.Y).

The marketing for the firm centered on materials made by Mr. Mitsakos. Those materials represented that Matrix had achieved outsized returns, exceeding major market indices. One news letter claimed that the fund had returns of 25% in 2012, 66% in 2013 and 20% in 2014. Matrix also supposedly had millions of dollars under management.

In fact the firm did not have any record of success and no meaningful assets under management. To the contrary, the performance results highlighted in the marketing materials were based on a hypothetical portfolio which Mr. Mitsakos periodically manipulated to ensure it had good results. Potential investors were not told that the claimed returns were hypothetical.

Based on the misrepresentations of Mr. Mitsakos, the fund raised about $2 million from investors. Approximately $1.2 million was used to trade securities. The balance of the funds were used for Mr. Mitsakos’ personal expenses. Most of the investments resulted in losses.

The court sentenced Mr. Mitsakos to serve 30 months in prison followed by two years of supervised release. In addition, Mr. Mitsakos was ordered to forfeit $861,163.32 and to pay restitution to the victims. The SEC filed a parallel case. SEC v. Matrix Capital Markets, LLC, Civil Action No. 1:16-cv-069395 (S.D.N.Y. Filed August 11, 2016).