Indictment Issued Against Five Individuals for Alleged Wire Fraud

Five individuals accused of defrauding hedge fund investors of over $200 million dollars have been indicted on charges of conspiracy and wire fraud, according to recent statements by Assistant Attorney General Alice S. Fisher of the Criminal Division and U.S. Attorney R. Alexander Acosta of the Southern District of Florida.^[1]

Michael Lauer, Martin Garvey, and Eric Hauser, co-owners of management companies which controlled the hedge funds, and Laurence Isaacson and Milton Barbarosh, who are accused of falsely inflating appraisals, are the defendants named in the indictment.^[2] The alleged conspirators face a maximum sentence of 20 years and a $250,000 fine for each count of wire fraud and five years and a $250,000 fine for the conspiracy count.^[3] In addition, the indictment seeks forfeiture of the proceeds from their alleged criminal activity.^[4]

The indictment states that Lauer, as founder and primary manager, formed and directed several hedge funds, which came to be known as the Lancer Group hedge funds.^[5] From October 1999 to July 2003, Lauer and his co-defendants are accused of having manipulated the closing market price of thinly-traded shell company securities in an attempt to drive up the value of the Lancer Group hedge funds.^[6]

The indictment also accuses Lauer of creating fake portfolios of the securities supposedly held by Lancer Group and obtaining falsely inflated appraisals of the shell companies to disguise and carry out the conspiracy.^[7]

Wire fraud, as defined under 18 U.S.C. §1343, states that whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both. If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.^[8]

Federal criminal attorney Douglas McNabb has previously discussed the federal crime of wire fraud which can be found here.

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[1] Reuters, Lancer Group Hedge Fund Ex-Manager Indicted by US, Reuters, Feb. 19, 2008 (available at http://www.reuters.com/article/bondsNews/idUSN1926246720080220).
[2] Id.
[3] Id.
[4] Id.
[5] Id.
[6] Id.
[7] Id.
[8]18 U.S.C. §1343(2008).