U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21971 /May 16, 2011
Securities and Exchange Commission v. John Clement & Edgefund Capital, LLC, United States District Court for the Southern District of California, Case No. 11CV1034 LAB WVG (filed May 12, 2011)
SEC FREEZES ASSETS OF FRAUDULENT DAY TRADING SCHEME IN SAN DIEGO AREA
The Securities and Exchange Commission filed an emergency enforcement action to halt a fraudulent scheme being conducted by John Clement of Encinitas, Calif., and his company Edgefund Capital LLC.
The SEC alleges that Clement ran a purportedly profitable day trading business out of his home and raised at least $2.1 million since August 2008 from 22 investors in the San Diego area. Clement hyped the profit potential by falsely promising returns of 1 to 2 percent per month to investors in his hedge funds (The Edgefund, LP and The Edge Fund Ltd., LP). He falsely claimed that the risk potential was limited because of his purported 5 percent stop-loss rule, and he falsely assured investors that they could request a return of their investments at any time upon written request. The SEC alleges that Clement has misappropriated and misspent all of the investor funds.
The Honorable Larry A. Burns, U.S. District Judge for the Southern District of California, granted the SEC’s requests for an immediate freeze of the assets of Clement and Edgefund Capital and an order prohibiting Clement and Edgefund Capital from destroying evidence. The court will hold a hearing on May 16, 2011, on the SEC’s motion for a preliminary injunction.
The SEC alleges that in order to conceal his fraud, Clement sent fabricated account statements to at least one investor that reflected an inflated fund balance of $8.2 million. In fact, the hedge fund accounts at that time were not even funded. Beginning March 29, 2011, Clement began telling investors that an SEC investigation had impacted his ability to communicate with them, frozen his bank accounts, and blocked his securities trading activities. Although the SEC was investigating Clement’s operations, he lied in his other assertions to investors.
The SEC’s complaint charges Clement and Edgefund Capital with violating the antifraud provisions, Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, of the federal securities laws. In addition to the emergency relief, the complaint seeks preliminary and permanent injunctions, disgorgement, prejudgment interest, and financial penalties.
The SEC’s investigation was conducted by Alka N. Patel and Solomon Mangolini in the Los Angeles Regional Office. Karen Matteson will lead the SEC’s litigation.