Oregon Hedge Fund Manager Receives 6.5 Year Sentence For $6.4 Million Ponzi Scheme

A Portland hedge fund manager was sentenced to serve 6.5 years in federal prison for a Ponzi scheme that took in at least $37 million from investors.  Yusaf Jawed received the sentence after previously pleading guilty to seventeen counts of mail fraud and wire fraud.  In an agreement with prosecutors that cited his "substantial assistance to prosecutors," authorities agreed to recommend a 6.5 year sentence - even though a pre-sentencing report recommended a minimum term of at least 8 years.  While Jawed has promised to repay victims, he faces an uphill quest; he must pay restitution of $6.4 million in the criminal case, and recently had a $34 million judgment entered against him in a case brought by the Securities and Exchange Commission.

Jawed operated Grifphon Asset Management, LLC ("GAM") and Grifphon Holdings, LLC ("GH"), which served as the advisers to numerous hedge funds created and managed by Jawed, including Gripfhon Alpha Fund, L.P. ("Alpha") and Grifphon Iota Fund, L.P.  Investors were told through private placement memoranda that the funds experienced annual returns ranging from 12.8% to 132.5% from 2002-2008 through an investment strategy comprised of holdings in publicly-traded securities, private equities, biotech companies, foreign currencies, and commodities.  Investors were supplied with account statements and tax returns that purported to show constant profits in investor accounts, and were assured that their funds would be held at prominent institutions such as Lehman Brothers and UBS.  In total, Jawed raised at least $37 million from over 100 investors all over the United States.

However, little, if any, of the claims made to investors were true.  According to authorities, Jawed misappropriated millions of dollars in investor funds for his personal use, which included luxury vacations, lavish meals, and the payment of nearly $60,000 to settle a sexual harassment lawsuit.  Additionally, Jawed used investor funds as the source of fictitious interest payments designed to lend an aura of legitimacy to the scheme. 

When the scheme appeared on the verge of collapse in 2008, Jawed hatched a scheme with the help of Robert Custis, an attorney.  The two began telling investors that a third party would soon purchase the funds' assets, and investors would soon be reimbursed for their investment at a healthy profit.  This pattern of deception lasted an additional two years with the use of various excuses such as the time zone difference of the banks, "dotting I's and crossing T's," and confidentiality problems.  However, this third-party purchaser was none other than an entity created and controlled by Jawed.  For his role in the scheme, Custis was also charged by the SEC.

As part of his cooperation with authorities, Jawed agreed to cooperate with a lawsuit brought by investors against Grifphon's former accounting and law firms.  At Jawed's sentencing hearing, prosecutors announced that a settlement had been reached in that case, but terms were unavailable.  Jawed was previously ruled destitute by the federal court, meaning that the potential recovery against the former accounting and law firms likely represents the sole avenue for compensation for defrauded victims.