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From Securities Regulation Daily, June 10, 2015

SEC charges fraudster who stole investments from small businesses

By Amanda Maine, J.D.

A New Jersey man masquerading as a hedge fund manager misappropriated nearly $5 million from two companies, according to an SEC complaint filed in federal court.  The complaint alleges that the companies invested money in a purported hedge fund in exchange for obtaining financing, but the defendant instead misappropriated the invested funds for his personal use (SEC v. Lattanzio, June 10, 2015).

Black Diamond Fund. New Jersey resident Nicholas Lattanzio is the sole owner of Black Diamond Investments LLC through which he controls other entities and funds also bearing the Black Diamond name. Between August 2011 and August 2014, Lattanzio offered and sold interests in the Black Diamond Fund, representing to potential investors, including two small businesses, that the money would be used to make lucrative investments.

One investor, identified in the SEC’s complaint as Company A, acquires distressed oil and gas assets and manages those assets. A representative of Black Diamond Fund (identified as “Associate A”) told Company A officers that he could arrange financing in the form of a $20 million credit facility from a third party in exchange for a $2 million investment in Black Diamond Fund. Associate A and Lattanzio represented that Black Diamond Fund was a well- established fund with a significant history, multiple investors, $100 million in assets under management, and an annual average return of 18 percent. All of these representations were false, the SEC alleged. In addition, when Company A began to suspect that the promised credit facility was not forthcoming, Lattanzio sought to dissuade Company A with its request to redeem its investment by claiming that the financing was imminent or had been received, as well as other misrepresentations.

The SEC’s complaint painted a similar story regarding Company B, which is involved in managing and developing hotels. Black Diamond’s proposed financing arrangement stated that Company B would receive $8.8 million from a third party lender after it first invested $1.95 million with Black Diamond Fund. The terms of the transaction provided that Company B could withdraw its money from the fund if the lender did not commit within 90 days to provide the proposed funding; however, the credit facility never materialized. As with Company A, Lattanzio made several false statements about Black Diamond, including that it had over $800 million in assets and that Black Diamond would use its (completely fabricated) connections with Deutsche Bank, DBS Bank, or Barclays to obtain the credit facility.

Misappropriation by Lattanzio. While Lattanzio invested a small amount of money placed into the fund, these investments were inconsistent with the investment strategy outlined in the offering memoranda. Most of the money from Companies A and B was stolen by Lattanzio to pay for personal expenses, the SEC alleged. These expenses included credit card payments, private school tuition, country club fees, yacht expenses, jewelry, a luxury vehicle, and payroll payments to himself. Funds were also spent on cash or check payments to himself, his girlfriend, and Associate A.  Lattanzio has not returned any money to either Company A or Company B.

Charges. The SEC’s complaint charges Lattanzio and the various Black Diamond entities with violating the federal securities antifraud provisions under the Securities Act and the Exchange Act, as well as the investment adviser fraud provisions under the Investment Advisers Act.  The U.S. Attorney’s Office for the District of New Jersey also announced criminal charges against Lattanzio. In addition, the New Jersey Bureau of Securities within the State Attorney General’s Division of Consumer Affairs announced sanctions against him.

Attorneys: Andrew M. Calamari for the SEC.

Companies: Black Diamond Investments, LP; Black Diamond GP, LLC; Black Diamond Investments LLC; Black Diamond Capital Appreciation Fund, L.P.

MainStory: TopStory FraudManipulation Enforcement InvestmentAdvisers NewJerseyNews

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