HOUSTON (CN) - An inept day trader defrauded investors of $6.1 million by claiming his "proprietary algorithm" would net them 30 percent annual returns, the SEC claims in court.
The Securities and Exchange Commission sued Firas A. Hamdan, individually and dba FAH Capital Partners, in Federal Court.
Hamdan, 49, of Sugar Land, defrauded at least 33 people, mainly "fellow members of Houston's Lebanese and Druze communities," the SEC says in its complaint.
The Druze is a monotheistic religious group based in the Middle East.
"Hamdan pitched his program by telling potential investors that he would pool their funds with his own funds, and those of other investors, in a brokerage account," the complaint states. "He claimed that he would then use the combined funds to day trade using a proprietary algorithm that had proven success and limited risk and pay them guaranteed fixed annual returns of 30 percent or more.
"To lure investors, Hamdan used, among other things, false brokerage documents allegedly demonstrating his past success. He also assured potential investors their principal was fully secured. However, the claims Hamdan made to entice investors and his promises of limited risk guaranteed returns were pure fiction."
Hamdan showed his suckers phony TD Ameritrade brokerage records that drastically overstated his gains, lied about a "cash reserve account," falsely claimed their investments were secured by a $5 million insurance policy and that a "well-known Dallas hedge fund manager had made a million dollar investment in the MPP and had promised to invest more," the SEC says in the complaint.
"Although Hamdan did day trade at least some of the investors' funds in his brokerage account, he was anything but successful," the SEC says. "Between 2007 and 2011, during most of which time he continued to raise funds from investors, Hamdan lost almost $1.5 million through trading activity. His trading patterns show that he lost money consistently throughout these years and thus could not have generated sufficient returns to fund the monthly distributions he was making to investors.
"Despite his tremendous losses, Hamdan continued to solicit new money from investors throughout 2012. Starting as early as 2009, however, some investors stopped receiving returns and it appears Hamdan stopped paying any returns by October 2011. Throughout the remainder of 2011 and 2012, Hamdan continually provided various false excuses to investors for his failure to pay promised returns, even as he continued to solicit new funds. Hamdan received new funds from existing investors at least as recently as January 2012, and in December 2012, told investors he was expecting up to $700,000 in investments to start a new trading venture."
The SEC says that when it began investigating Hamdan, in December 2012, he told it the $6.1 million he had raised from investors was "depleted."
"Hamdan estimated that approximately $3 million of the $6.1 million total funds invested had been paid back to investors; $100,000 had been 'loaned' to him for his personal living expenses; $1.5 million represented market losses; and the remaining $1.5 million could not be accounted for," the complaint states.
"The Commission staff has not been able to verify these statements by Hamdan, but for purposes of this complaint, assumes that he had at least $6.1 million under management, raised money from at least 33 investors and that he cannot account for at least $1.5 million."
Though Hamdan's trading skills were not the best, he talked a good game, the SEC says. "As word of his purported success began to spread, he began to solicit and accept investments from friends of friends and friends of family," the complaint states. "He also encouraged existing investors to solicit their friends and family as new investors, and paid at least one investor a 'finder's fee' for identifying a new investor."
But even the new money couldn't prop up his scheme, the SEC says. It claims that even after it notified Hamdan that he was under investigation he kept soliciting investors.
"On or about December 21, 2012, upon being contacted by the Commission staff, Hamdan promised in writing that he would stop soliciting any funds of any kind from existing and potential investors," the complaint states. "However, in specific contradiction to his representations, Hamdan immediately started soliciting new funds from current investors, purportedly to fund his legal defense. Most recently, Hamdan has continued to lie to investors by telling them he is unable to make monthly distribution payments because he is under investigation by the Commission."
The SEC seeks disgorgement and penalties and an injunction telling Hamdan not to do it again.