Litigation Release No. 21467 / March 30, 2010

Securities and Exchange Commission v. James M. Nicholson, et al., Civil Action No. 1:09-cv-1748 (S.D.N.Y.) (RMB)

SEC Obtains Final Judgments Against Two Defendants In Hedge Fund Ponzi Scheme

On March 29, 2010, the Honorable Richard M. Berman of the United States District Court for the Southern District of New York entered final judgment against defendants James M. Nicholson and Westgate Capital Management, LLC. The final judgment permanently enjoins them from violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act and Rule 206(4)-8 thereunder. In addition, the final judgment provides that in the event restitution is not ordered in the criminal proceeding captioned United States v. Nicholson, 1:09-cr-414 (S.D.N.Y.) (RJS), Nicholson will pay appropriate disgorgement, prejudgment interest and civil penalties at a later date. Nicholson and Westgate consented to the entry of the final judgment without admitting or denying the allegations in the Commission's complaint.

The Commission commenced this action on an emergency basis in February 2009 by charging Westgate, a Pearl River, New York-based investment adviser, and James Nicholson, its founder and president, with operating a Ponzi-style scheme through eleven unregistered hedge funds. Criminal authorities arrested Nicholson and charged him with securities fraud, among other things, on the same day. Nicholson has been incarcerated since his arrest. The Commission's complaint alleges that Nicholson sold interests in eleven hedge funds based upon material misstatements and omissions about the funds' investment success and size. While Nicholson had claimed to manage between $600 million and $900 million through Westgate, those claims were wildly overblown. Westgate did raise roughly $290 million from investors on the basis of material misstatements and omissions.

Nicholson has pleaded guilty to charges in the parallel criminal action and is scheduled to be sentenced on June 30, 2010.

The Commission acknowledges the assistance and cooperation of the United States Attorney's Office for the Southern District of New York and the Federal Bureau of Investigation.

For more information, see Litigation Release No. 20911 (Feb. 25, 2009).


Last modified: 3/30/2010