NEW YORK, Oct. 3 -- The U.S. Attorney for the Southern District of New York, Geoffrey S. Berman, issued the following news release:
Geoffrey S. Berman, the United States Attorney for the Southern District of New York, announced that JOHN GERACI pled guilty in Manhattan federal court today to conspiring to commit securities and wire fraud. GERACI's plea stems from his participation in a scheme to defraud clients of his company, Meridian Capital Asset Management.
GERACI caused two clients ("Victim-1" and "Victim-2") to invest in a hedge fund called the Meridian Matrix Long Short Fund (the "Meridian Matrix Fund").
Between in or about December 2015 and November 2016, GERACI provided fictitious account statements and updates to Victim-1 and Victim-2, telling them that their investment was worth millions when, in reality, GERACI knew that large portions of it had been stolen by the Meridian Matrix Fund's administrator. GERACI eventually liquidated the Meridian Matrix Fund and misappropriated significant portions of the remaining funds.
Although he had recovered over $1 million of Victim-1 and Victim-2's investment, GERACI falsely told them that their entire investment had been lost, and improperly used their money to pay his own personal and business expenses.
GERACI was arrested on August 7, 2018, and pled guilty today before United States District Judge Alison J. Nathan.
U.S. Attorney Geoffrey S. Berman said: "As he admitted today, John Geraci lied to his clients about how much of their money was lost in investments with Nicholas Mitsakos. What wasn't actually lost to Mitsakos was stolen by Geraci. Now Geraci, like Mitsakos, is a convicted felon."
According to the Complaint, the Indictment, and other statements made in open court:
JOHN GERACI was the principal and founder of Meridian Capital Asset Management. In or about February 2015, GERACI was introduced to another individual, Nicholas Mitsakos, who purported to operate a hedge fund called Matrix Capital ("Matrix"). Mitsakos told GERACI that Matrix had tens of millions of dollars under management and had achieved annual returns between 19.4% and 66.3% from 2012 to 2014. GERACI and Mitsakos subsequently entered into an arrangement whereby GERACI would raise money for Mitsakos, Mitsakos would manage that money through a new vehicle, the Meridian Matrix Fund, and GERACI and Mitsakos would then split any fees that the Meridian Matrix Fund generated. As part of this arrangement, GERACI solicited Victim-1 and Victim-2 to invest approximately $2 million in the Meridian Matrix Fund, in large part by relying on Mitsakos's claims about his supposed fund's assets under management and performance returns.
In or about December 2015, however, GERACI learned that Mitsakos had only invested approximately $1.2 million of Victim-1 and Victim-2's investment, and had misappropriated significant portions of the remaining money. GERACI also learned that Mitsakos never had any actual assets under management, and that his performance returns were accordingly fictitious and misleading. Nonetheless, GERACI never told Victim-1 or Victim-2 that their investment was in jeopardy or had been solicited with misleading information. To the contrary, GERACI sent Victim-1 and Victim-2 updates that hid Mitsaskos's misappropriation and falsely claimed that their investment had appreciated. GERACI sent these fictitious updates even after GERACI had liquidated the Meridian Matrix Fund's trading positions in or about June 2016.
In or about August 2016, Mitsakos was charged in this District with securities fraud and other offenses. In or about September 2016, GERACI changed course: instead of providing fictitious account updates to Victim-1 and Victim-2, GERACI told them, in substance and in part, that their entire investment had been wiped out through Mitsakos's fraud. GERACI did this even though he had ultimately received approximately $1.1 million of Victim-1 and Victim-2's investment back from Mitsakos after liquidating the Meridian Matrix Fund's trading positions. Rather than returning this amount to Victim-1 and Victim-2, GERACI used it to pay for his own personal and business expenses, including, for example, payments on a BMW automobile, a gym membership, gas, groceries, travel expenses, and his cellphone bill.
In addition to sending false account updates to Victim-1 and Victim-2 even after learning that Mitsakos had lied about his fund's assets and performance and that Mitsakos had stolen significant portions of Victim-1 and Victim-2's investment, GERACI continued to try to raise money for an investment related to Meridian Matrix Fund from others. In attempting to do so, moreover, GERACI relied on the same representations about Matrix's assets and performance that he knew to be false.
Mitsakos pled guilty to conspiring to commit securities fraud and wire fraud on May 25, 2017, and on November 7, 2017, was sentenced to 30 months in prison by the Honorable Denny Chin, a judge on the United States Court of Appeals for the Second Circuit who was sitting by designation in the Southern District of New York.
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GERACI, 62, pled guilty to one count of conspiring to commit securities and wire fraud. This charge carries a maximum term of five years in prison. The maximum potential sentence in this case is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.
GERACI will be sentenced on January 23, 2020.
Mr. Berman praised the investigative work of the United States Postal Inspection Service and thanked the Securities and Exchange Commission for its assistance.
This case is being handled by the Office's Securities and Commodities Fraud Task Force. Assistant United States Attorneys Jared Lenow and Drew Skinner are in charge of the prosecution.