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Two Indicted in $34M Hedge Fund Scheme

LAS VEGAS (CN) - Two men bilked Florida-based hedge funds and their investors of $34 million, a federal grand jury claimed Wednesday in an indictment.

Robert Buckhannon, 53, of Las Vegas, and Terry Rawstern, 66, of Aberdeen, S.D., are both charged with conspiracy to commit wire fraud, and wire fraud: specifically, "a fraudulent scheme to misappropriate $34 million they raised for the hedge funds."

If convicted of both charges, they face up to 50 years in prison and $2 million in fines, each.

The indictment, filed on Sept. 24, was unsealed Wednesday.

It claims that from April 2008 through April 2010, Buckhannon, Rawstern and co-conspirators were managing members of two Bradenton, Fla.-based hedge funds, Arcanum Equity Fund and Vestium Equity Fund.

They are accused of misappropriating $34 million they raised from investors by misrepresenting how they would use the money, and misrepresenting that there were safeguards over the money, such as an independent trustee and independent fund administrator.

Buckhannon and Rawstern "looted and bankrupted the hedge funds by taking payments on false and fictitious profits and taking improper and undisclosed loans," U.S. Attorney Daniel Bogden said after the indictment was unsealed.

Bogden said the two men "took more than $1.3 million in profit-based fees and compensation to which they were not entitled" and lied about how they used the money.

"They blatantly disregarded the funds' investment parameters and steered more than $16 million into loans and other deals with companies in which they had undisclosed financial interests," according to the 18-page indictment.

Buckhannon was CEO, president and managing member of Vestium and a managing member of Arcanum. Rawstern was CFO, secretary, vice-president and managing member of Arcanum and a managing member of Vestium, according to the indictment.

Investors lost about $13.1 million in the scheme, according to the indictment. The hedge funds filed for Chapter 7 bankruptcy in April 2012 and now are under the control of court-appointed trustees.

Wednesday pleaded not guilty on Wednesday. Rawstern was scheduled for arraignment Thursday.

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