The office of Attorney General Jeffrey Chiesa has charged executives from a Jersey City hedge fund in connection to an alleged fraud. They told would-be investors it was a hedge fund for the “little guys” and the “moms and pops.” But in reality, authorities said, the Jersey City investment firm Osiris Fund L.P. was little more than an elaborate fraud run by a three-time convict who had been booted from the securities industry two decades ago.
The state attorney general’s office yesterday announced it has sued Peter Zuck, his collapsed hedge fund and nine other people tied to the alleged multiyear fraud that bilked some 76 investors out of millions of dollars.
While much of the $12 million that was entrusted to Osiris was sapped by undisclosed trading losses, allegedly illegal loans and inflated management fees, the state is seeking an asset freeze in hopes of returning money to harmed investors, Attorney General Jeffrey Chiesa said in a statement yesterday.
Chiesa’s office filed the case this week in Hudson County Superior Court on behalf of the state’s Bureau of Securities.
According to the state’s civil complaint, Zuck, a 62-year-old from Middletown, and other defendants formed Osiris, which is the name of the Egyptian god of death, in June 2009 and used unregistered agents to solicit investors to buy unregistered interests in the fund, which are violations of state securities code.
The fund’s offering documents also failed to disclose Zuck’s criminal background, which included a five-year prison sentence handed down for securities fraud and corporate misconduct.
The documents did disclose that Osiris clients would be charged a management fee equal to 3 percent of the value of the fund’s net assets. But unbeknownst to them, the firm soon began overstating this net asset value, allowing it to extract higher fees from clients, officials wrote.
Then, in April and May of 2010, Osiris incurred massive trading losses of about $4.52 million, or around 50 percent of the fund’s value at the time. But rather than admit these losses to investors, state officials said, Osiris’s executives instead falsified account statements sent to investors by adding a fictitious $5 million asset to the fund’s holdings.
Michael Spak, Osiris’ chief executive and a co-defendant in the case, allegedly admitted to state investigators that while investors should have been told the fund was “down 50 percent,” Zuck told him not to because “it’s not going to be good for business,” officials wrote.
Meanwhile, the firm’s management allegedly billed customers for holding this fictitious asset — which was later inflated to be worth $6.5 million — by adding it to its management fee calculations.
The losses to the Osiris fund weren’t limited to bad trades, state officials wrote. Osiris management also funneled investor money to make illegal “loans” and transfers to an affiliated entity, Osiris Partners, that is also named as a defendant in the state’s case. Among other things, the defendants loaned $300,000 of the fund’s money to Osiris Partners to buy a fishing boat called “Fintastic,” the state alleged.
Zuck also allegedly used up to $700,000 of investor money to renovate the firm’s Jersey City office, and used their funds to pay his wife up to $7,500 in monthly rent on the building, even though Zuck’s daughter owned the property.
Officials said between the loans, transfers and inflated management fees, Osiris officials, their relatives and affiliated companies were able to illegally pocket some $4 million in investor money.
“This case clearly illustrates why we urge consumers to perform their due diligence before investing their money,” said Eric Kanefsky, acting director of the state Division of Consumer Affairs. “Unregistered people selling unregistered securities are serious red flags, as is any past criminal history in the securities industry.”
Also named as defendants were Spak’s father, Joseph Spak, 69, of Milltown, who served as Osiris’s controller and his brother, Brian Spak, 36, of Hamilton Square, a member of Osiris Partners who had authority over the firm’s bank accounts.
John Najarian, 34, of Hillsdale, the firm’s chief operating officer, also was charged along with four others affilated with the firm or who sold interests in its fund. The state also named nine relief defendants in the matter.
Thomas Buck, an attorney for Joseph Spak, declined to comment. Attorneys for Zuck, Michael Spak and Najarian did not return calls. A phone number listed for Osiris’ Jersey City office was disconnected.
Ed Beeson: (973) 392-4262, ebeeson@starledger.com.