U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23822 / May 1, 2017
Securities and Exchange Commission v. Mark J. Varacchi, et al., No. 3:17-cv-00155 (D. Conn. filed Feb. 2, 2017)
United States v. Varacchi, No. 1:17-cr-00076 (S.D.N.Y. filed Jan. 30, 2017)
Court Enters Judgment Against Connecticut Man and His Investment Advisory Firm and Appoints Receiver In Hedge Fund Ponzi Scheme Case
On May 1, 2017, the U.S. District Court for the District of Connecticut entered a judgment against Mark J. Varacchi and his firm Sentinel Growth Fund Management, LLC for misappropriating investor assets in a hedge fund Ponzi scheme.
The court also entered judgment against two hedge funds named as relief defendants in the SEC's complaint - Radar Alternative Fund LP and Radar Alternative Master Fund SPC. Both funds were managed by Sentinel and Varacchi. On May 1, 2017, the court separately entered an order appointing a receiver to oversee assets of Sentinel and the Radar Funds.
The SEC's complaint, filed on February 2, 2017, alleged that Sentinel and Varacchi misrepresented to investors that money they deposited with the firm would be allocated to up-and-coming hedge fund managers for investment purposes. According to the SEC's complaint, Sentinel and Varacchi did not transfer all the money as promised, instead commingling investor assets and manipulating account activity, account balances, and investment returns as part of a scheme to siphon away investor funds. Varacchi and his firm allegedly stole at least $3.95 million from investors, including over $1 million to settle litigation brought by Varacchi's prior employer. On February 3, 2017, the SEC obtained an asset freeze and other preliminary relief against Sentinel, Varacchi, and the Radar Funds.
Sentinel, Varacchi, and the Radar Funds consented to entry of the judgment. The judgment permanently restrains and enjoins Sentinel and Varacchi from violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, Section 17(a) of the Securities Act of 1933, and Sections 206(1), 206(2), and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Whether the court will order disgorgement and prejudgment interest against Sentinel, Varacchi, or the Radar Funds, or civil penalties against Sentinel or Varacchi, will be determined at a later date upon the SEC's motion.
On February 1, 2017, Varacchi pleaded guilty to securities fraud, wire fraud, and conspiracy to commit securities fraud and wire fraud. The criminal information charged Varacchi with conduct overlapping with the allegations in the SEC's complaint. In consenting to entry of the judgment in the SEC's action, Sentinel, Varacchi, and the Radar Funds acknowledged Varacchi's guilty plea.
Varacchi also has consented to the entry of an SEC order, based on his guilty plea, that bars him from the securities industry.
The SEC's investigation, which is continuing, was conducted jointly by staff of the Asset Management Unit and the SEC's Boston Regional Office, including Robert Baker, Cynthia Baran, Trevor Donelan, Martin Healey, Michael Moran, and Naomi Sevilla.