CHICAGO (CN) - A Marine veteran used his unregistered hedge fund to defraud fellow veterans, active-duty service members and others of $1.8 million, the SEC said Tuesday.
The SEC said it obtained an emergency court order to stop Clayton A. Cohn and his hedge fund Market Action Advisors.
Cohn, 26, of Winnetka, used only half of the money he raised to invest through his Chicago-based business, the SEC said.
"Cohn targets veterans and current military personnel as potential investors, among others. So far, Cohn has raised approximately $1.78 million from 24 investors," the SEC said in its 18-page federal lawsuit.
"Cohn has used less than half of the investor proceeds on the trading strategy described in his pitch to potential investors. He also invested a small amount of the investor proceeds in private equity-style investments in small enterprises. Sadly, Cohn has lost every penny of these investments - the result of unsuccessful trading and bad investment choices.
"Cohn has used the rest of the investors' proceeds to support his lavish lifestyle - thereby perpetuating the carefully contrived image of a successful trader and investor.
"Cohn is concealing his losses from his investors by lying about the fund's performance; by fabricating investor account statements; by forging brokerage statements; and by using new investor money to pay redemptions to earlier investors.
"The jig is just about up. Several investors have requested redemptions simultaneously. Cohn has refused to honor their requests, claiming that unspecified liquidity problems have temporarily delayed such redemptions. In fact, Cohn and the Fund are broke. But that sad reality has not diminished his thirst for new victims, which he has continued to lure since losing the bulk the investors' proceeds.
"The Commission brings this lawsuit to put an immediate stop to Cohn's ongoing violations of the federal securities laws, to prevent further harm to investors, and to seek disgorgement and civil penalties from Cohn stemming from his violations of the securities laws, among other remedies."
Neither Cohn nor his business are registered with the SEC.
Winnetka, pop. 12,400, a North Shore suburb of Chicago, is one of the wealthiest towns in the United States. Its median household of $196,547 was more than 3½ times the state average in 2009, according to city-data.com. Its median home price of $979,043 was 4½ times the state average.
The SEC said in a statement that Cohn invested no more than $4,000 of his own money in his scheme, "and absconded with far more money for his personal expenses." Nor did the audit firm he named ever audit his company.
The SEC seeks disgorgement, penalties and an injunction.
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