SEC Charges Prophecy Asset Management's President/CCO with Multi-Year Fraud Scheme

Posted on November 17th, 2023 at 2:15 PM
SEC Charges Prophecy Asset Management's President/CCO with Multi-Year Fraud Scheme

From the desk of Jim Eccleston at Eccleston Law 

The Securities and Exchange Commission (SEC) has filed charges against John Hughes, who served as the president and chief compliance officer of registered investment adviser Prophecy Asset Management LP.

Hughes is accused of participating in a multi-year fraud scheme that concealed losses of hundreds of millions of dollars from investors. The SEC's complaint alleges that Hughes and his associates at Prophecy Asset Management misled investors, auditors, and the fund administrator about the funds' trading practices, risk, and performance, all while collecting over $15 million in fees.

According to the SEC's complaint, Hughes led investors to believe their investments were safeguarded from losses by assuring them that the funds' capital was distributed among numerous sub-advisers who traded in easily liquidated assets and posted cash collateral to cover any trading losses. In reality, a substantial portion of the funds' capital was funneled to a sub-adviser who incurred significant trading losses exceeding the cash collateral he had contributed.

Additionally, Hughes directed the funds to invest in highly illiquid assets, resulting in significant losses. Hughes attempted to conceal these losses by creating false documents and a series of deceptive transactions to obscure the true financial status of the funds. The complaint also alleges Hughes misled investors about diversification and trading strategies in two other funds. As of 2020, after losses in the funds managed by Prophecy Asset Management reached over $350 million, Hughes and the firm suspended investor redemptions indefinitely.

 

Eccleston Law LLC represents investors and financial advisors nationwide in securities, employment, transition, regulatory, and disciplinary matters.

Tags: eccleston, eccleston law, sec

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