Securities and Exchange Commission v. Nadel et al

Filing 745

RESPONSE re #733 Order filed by Wells Fargo Bank, N.A., as successor by merger to Wachovia Bank, N.A.. (Attachments: #1 Exhibit, #2 Exhibit, #3 Exhibit, #4 Exhibit, #5 Exhibit)(Barnett, Ana)

EXHIBIT A

l

J\pproved:

M.B
E. DOüVAS
Assistant Uníted Stsates Attorneys
MARÏA

Sefore:

B. PTTMAN
Chief United States MagÍstrate
Soutkrern Ðistriet of New york
HONOR.ABLE I{ENRY

-----x
:
TJNÏTED STATES OF A}4ERTCA
:
* v. :
.ARTHTTR

G.

,Judge

3"

ffi#

Víolation of

r-s u.s.c. ss 78j (b) ,
78ff., L7 C,F.R. S
240.LOb.:sì L8 U.S.C.
L343 | 2.

NAÐEIJ,

ss

Defendant.

COUNTY OF OFFENSE:
NEW YORK

---x
SOUTHERN DISTRICT OF NEW YORK, ss.:
KEVIN RTORDAN, befng duly Éworn, deposes and says that
he is a special Agent with the Federal Bureau of rnvestigätion
("FBI') and charges as follows:
courcr

oNE

(Securíties

Fraud)

1- From at least Ín or about 2OO4 through at l-east on
or about 'January 14, 2oog, in the southern Distríct of New york
a.nd elsewhere, ARTHI'R G. NÀDEL, the defendant, unl_awfu3-1y,
wilfully and knowíngly, by the use of Èhe means and
instrumentalities of LnterstaLe. commerce and of the mails,
direcÈly and indírectIy, would. and. did use and employ manipulative
and deceptiwe devices and contrivances ín viol-ation of títte tZ,
Code of Federal Regulations, Sect,ion 24O.]-Ob-5, by (a) employing
devícés, sckremes, and artifices to defraud; (b) mát<ing untrue
statements of materíal facts and omittíng to state materÍa1 facts
necessary in order to make the statements made, in the 1ight of
the circumstances under which they were made, not rnislead.ing; and
(c) engaging ín acts, practíces, and eourses of business which
operated and would operate as a fraud and deceít upon persons in

connection with the purchase and sale of securítíes, to wÍt, NADEL
false representations to invgstors regardíng his investments

made

of their money.
(Title 15, Uníted states Code, Sections Zej (U) & TBff;
Tít1e L7, Code of Federal Regulatíons, Sectiorr 240.L0b-5;
and Tit1e l-8 , United States Code, Section 2 . )
COUNT TWO

(f.ifre

Frar+d)

'2. From at least ín or about August 2OOg up through and
including in or about December 2008, in the Southern Dist,rict of
New York, ARTHUR G: NADEL, the defendant, having devised and
intendíng to d.evise a scheme and artifice to defraud, and for
obtaining money and property by means of false and fraudulent
pretenses, representations, and promÍses,' un1awfully, willfuIIy
and knowingly woul-d and díd transmÍt and cause to. be transmitted
by means of wÍre, radío, and televisíon communicatíon ín
interstate and foreign commerce, writÍngs, signs, signals,
pictures and sounds, to wít, NÃÐBIr caused over one míllion dollars
to be wire t,ransferred from a brokerage fÍrm in New york, New
York, to certain bank accounts that NADEL controlled without,
autholization.
(fitle 18, United States.Code, Sect,ions 1343 and 2.)
The bases for my knowled.ge and tlre foregoing charges
are, in part, ãs foLlows:
2. . f have been a Special Agent with Èhe Federal Bureau
of Invedtigatíon f'or approxímately six years. I am curïentt_y
assigned to a- sguad responsible for investígating violations of
the federaL securities laws and related of fer¡ses - I trave
partícipated ín numerous investigations of these offenses, and. I
tra-ve made and particípated j-n makLng arrests of numerous
indivídua1s for particípatíng in such offenses

3. The ínformation contained ín 'trhís aff id.avit is
based upon my personal- knowledge, as well as information obtained
drrring Lhis investígatíon, directly or indirecLly, from other
sources and agents, j-ncluding: (a) information províded to me by
ttre United States Securities and Exchange Commíssion (tne '.SEC,,)i
(b) bank records; (c) trading records; (d) documents obtained from
certain índividuals; and (e) publicly avaíIable informatÍon.
Because this affídavit is prepared for lÍmited purposes, r have
not set forth each and every fact I have learned in connection
with thís investigation. where conversations and events are

referred to herein, they are rerated in substance and in part.
!Íhere figures and.calcurations are set forth herein, they are
approximate,
Belevant Entít,íes and. fndÍviduaLs

4. Based on my conversations with two individuals
(hereínafter "Partner-lrr and "ParEner-2tt) wtro worked. wiÈh ARTHUR
G. NADEL, the defendant, during the past several years, I have
learned the fo1J.owíng:
a. NÃÐEL told Partner-L that he graduated from
York universíty schoor of l,aw but was later disbarred..
.New
b. Ðuring the períod between ín or about May J.999
througtr in or about ,Tanuary 2009, Partner-L created two general
partnerships caLled Valhalla Managernent and Viking Management,
LLC''. T.hese general partnershíps formed Lhe following funds that
recej-ved and invested, money from ínvestors: VíkJ-ng IRÄ. Fund I-ILC;
Víking Fund LL,C; and Valhall-a InvestmenÈ partners Lp (hereinafter
"Group

I Funds,') .

c. Duríng the period between in or abouË 2OOL
through in or about ,Tanuary 2009, NADEL created two general
partnershíps called Scoop Management and Scoop Capítat LLC. NADET¡
was the general partner and owner of these partnershi-ps. These
partnerships forrned ttre fol-Lowing funds that received and ínvested
money from investors: victory ine zuna ttd..; víct,ory Fund Ltd.;
and Scoop ReaI Estate LP (hereinaft.er .'Group II Funds,, ) .
invesrmenr adví3å, r3Ï'l;3
'Further, NADEL,s office wasåÏil"ï';iiå,niiä"iå".ä3in'î; ;ffi"" .
located Ín Sarasota, tr'lorida. In
additíon, with respect to Lhe funds in which NADEL was the
investment adviser, NADEL wâs the only individ.ual who had
authority to trad.e the money investêC irr ttre Group I Funds and t,he
GrouP rr Funds.

5. From ín or about 2OOZ t,hrough in or about ,-Tanuary
2009, .A,RTHUR G. NADEL, the defendant, traded in thë Group r Funds
and the Group If Funds through a brokerage fírm with an office ín
'New York, New York (hereinafter '*Brokerage Firm,, ) , At various
tj-mes durÍng the relevant period, a "I¡üire RequesÈ Form,, with the
signature of "ArÈ Nadelr, was faxed to the New york, New york,
offíce of the Brokerage Firm for purposes of directing the
Brokerage Firm to transfer money from one accolllt to another.

6. Based on my conversatíons with another FBI agent
with a'represenLative of a hedge fund l-ocated Ín New
York, New York ("Vict,ím-1"), which invested in the Group I Funds
and the Group II Funds that ARTHUR e. ÌìIÃDEL, the defendant,
rnanaged as an investment advíser, I have learned ttre following:
a. Frorn Ín or about 2007 through in or about
2009, Victím-1 Ínvested at, least approximately $i.3,6'00,000
'January
in the Group I Funds and the Group II Funds. Victím-t received
account.statements relat.ing to íts investment by mail at Íts New
York, New York office until- Ín or about November 2008.
b. In or about October 2A08, Vict,im-1. reguested. a
redemption or return of all its money from Lhe Group r Funds and
tl.e Group II funds. Victim-l was told ttrat tlre money would be
returned ín or about Marct¡ 2OOg
c. NADEL indicated to the representaÈíve that
NADEL was making aL1 of Ltre ínvestment and trading decisíbns
rel-atíng to Victim-I-'s fund.s, Moreover, Victím-L was told Ehat
the retùrns on its investments were approxímaÈeIy between eight
and nine percent for the cälendar year 20OB and that earlier
.returns on the investment were much higher.
d. Victím-L rüas ínformed. through documents sent
from NADEIJ's office that, as of September 2008, Ehere was
approxímately $70,500,00O in total assets in Valhalla fnvestment
Partners T,P., approximately ç75,2O0,0A0 in total assets in Victory
Fund Ltd., and approximately $65,300,000 in total assets in Víking
zurrd LLC. As refleite¿ ín paragraph 19 below, the representations
regarding the returns on Èhe investments and the value of the
total assets ín these funds were false
7. Based orÌ my review of documents províded by the
SEC, I have 1earned tshat duríng the relevant period another
invest.or ("Víctim-z"¡ had Ínvêstme¡rts in the Group I Funds whích
ARTHUR G. NADEL, the defendant, managed as.an ínvestment.advLser.
Durlng the relevant period, the documenLs further show that
Vict.Ím-2 was J"ocated in New York, New York. Based on my
conversat,íons wíth Part¡fer-2, I understand. t}-aÈ Victim-2 had at
l-east approxímat,e1y $L5,000,000 invested in príncipat and interest
in the Group I F"unds.
8. I have also spoken directtry to representatíves of
the SEC, who spoke to a number of other víctims. Based on the
information provided by the SEC, I have learned the following:
who spoke

a, Victim-3 is an ind.ivid,ual irrvestor who líves
in the State of Virginia.

b. From in or about December 2000 ttrrough in or
about April 2Ao4, Víctim-3 invested money in Va1halla Investment
Partners LP, Víctory IRA Fund Ltd,, and Scoop Real Estate Lp.
c, VicLÍm-3 received monÈhly account statenients
that stated that, âs of Novernber 2oo8, (i) victim-3ts ínvestment
in Va1.ha1la Tnwestment Partners LP had a val-ue of approximaLely
$l-,176,848; (íi) VicÈim-3's investment in Victory IRÀ Fund Ltd.
had a value of over approxírnately ä775,OOO; and (iii) VictÍm-3rs
invesEment in scoop Real Estate LP had a value of approxímately
S590,32L. As reflected in paragraph L9 below, the representatíons
Ín these monthly account st,atements regarding the vah¡e of VÍctim3¡s investments in these funds $¡ere fa1se.
'
d. Víctim-4 is anoÈher indívidual investor who
lives in the State of Virginia.
e. In or about March 2004, Victim-4 invested.
money in Vi-ctory IRA Fund Ltd. and. Victory Fund Ltd..
f.
Victim-4 recelved monthly account statements
that stated that, âs of November 2008, (i) vÍctim-4's ínvestment
in Victory IRA Fund Ltd. had a value of over approxímately
$470,00O,. and (íi) Victirn-4's investment in Victory Fund Ltd. had
a value of approximate1y #4L9,824. As refJ-ected in paragraph 19
beJ,ow, the representatlons Ín these monthly account' statements
regardíng the value of Victím-4rs lnvestment.s in ttrese funds were
false

-

g. Victim-S ís an indÍvídual ínvestor who lives
ín the State of CalifornÍa.
nil1?Î"

6,.,,:. ;-* - u "i:i" : i"3'J3::: ti:; :#" i r3'r:'^';
i
"f
IRÄ, Fund LCd. and approximately $ZSor000 in Scoop ReaI Estate Lp.

abou

r

2oo

3'i'

i.
Victim-S received monthly account statements
that stated that, âs of November 2008, (i) Victim-S,s investment
in Victory IRA Fund Ltd. trad a value of approximately ç325,400;
and (ií) Víctím-S's investment in Scoop Real Estate LP had a value
of approximately $367,286. As reflected in paragraph 19 below,
the representations in t,hese monthly account statements regarding
the value of Lhe values of Víctim-Sts investraents in these funds

were faLse.

9. Based on my revi-ew of documents provided by the
SEC, I know that tlrere were over one hundred investors in the
Group I Funds and the Group II Funds and that the investors were
located throughout the United States.

Nadel's Manêgement.of Certain

Fr¿nds

10. Based on my conversatíoa with partner-2, I

have

learned that ARTHUR G. ¡Vn¡Éf.,, the defendant, was cÕmpensat.ed each
year for being the investment adviser of the Group.I Funds and, the
Group rr Funds. specÍficalJ.y, Partner-2 toLd me that, since in or
.about 2003 or 2004, NADEL received a management fee of one percent
of the totar amount of the asset,s ín the Group r Funds and. the
Group Tr Funds and twelve and one-half perc'ent of alr profíts
earned from the investments in the Group I Funds and the Group If
Funds. Partner-z further ínformed me Ëhat Partner-L and partner-2
received the same management fee and percent of the profits earned
on the investments,

1L. Based on my conversatíons with parÈner-2, I have
learned that ARTHUR G. NADEL, the defendant, Ínformed invesbors
and ottrers ttrat hls returns on thê Ínvestment,s in the Group r
Funds and the Group If Funds r{ere orl averaçte over twenty percent
each year from in or about 7-999 through in or about 2oo7, that

returns in 2008 Ì^/ere positive, and that NADEL,s trad.ing
only lost morley during four months between ín or about lggg
ttrrough in or about 2008, Based on my conversations with the SEC,
r understand b.hat NAÐEI, represent,ed to prospective investors
through offering documçnts that. his returns j.n 2OOB were between
ten and twelve percent. As refrected in paragraph 19 below, these
representatlons were false
NADEI¡'s

NAdei' s Wire,' Transfers

L2- Based otr my conversations with partner-2, I have
learned that, in or about, August 2008, ARTHUR c. NADEL, the
defendant, caused approxímaÈely $900,000 to be Lransferred out of
the Val-hal-la InvesEmenÈ Partners I¡P fund into a bank account in
the name of Valhalla fnvestment Partners (trereinafter *Va1Ïralla
Bank Account"). ParEner-2 further stat,ed that NADEL did not have
ttre authority to open the Valhalla Bank Account and that the bank
informed Partner-2 that Partner-2 díd. not, have signatory authority
over the Valtral-la Bank AccounE. I trave reviewed a "wÍre request
form" dated August 22, 2008, provj-ded by the custodian of the
Group r Funds and the Group rr Funds. This forrn contains the
signaËure of "Art Nadel-" as the customer requestÍn-g a transfer of
S900,000 from \VALIÍALLA IN\TESTMENT,, to the Va1halla Bank Accou¡at
in ttre Sarasotá, Florída, branch offíce, where NADEIJTs office r,tras
located. The form stated that the wire reguest was faxed to the
attention of a certrain individual at Ehe Brokerag'e Firm at a
number in New York, New york,
L3, Based on my conversations wíth pari-ner-2, I have
further learned that, in or about mid-December 2oog, ARTHUR G.
NADEL, the defendant, caused approximately g3SO,000 to be

trànsÊerred out of the Víking fRÀ Fund LLC into a bank account in
the name of Víking IRÀ (trereÍnafder "Viking Bank Àccount").
Partner-2 further stated that NADEL did not trave the authority to
open the vikÍng: Bank Account and that the bank informed Partner-2
that Partner-2 did not have signatory authoríty over the Viking
Bank Account. I have reviewed a "wire request form" dated
Décember 2,. 2008, provided by the custodian of the Group f Funds
and the Group II Funds. This form conËains the signature of tr45t
Nadel" as the customer requesting a transfer oË $350,000 from
'VIKING IRA" to the víking Bank Account in the Sarasota, Florida.
branch office, wtrere NADEL' s ofiice was located. The form stated
that the wire reguesE was faxed to the attentíon of a certain
índivÍdual- at the'Brokerage Firm at a number in New York, New
York

N-adet's Scheme Unravgl,s and Nadel F1egs

L4. Based on my conversatíons with Partner-L, I have
learned that ARTI{UR G. NAÐEL, the defendanE, rejected Partner-1ts
requests during the last several years to hire an independent,
certífied public accountant for the purpose of auditing all of the
assets of the Group I Funds and the Group II Funds. Partner-1
further informed me tl¡at, following the arrest of Bernard L.
Madsff'by the FBI in the Southern Dístrict of New York and

publiclty relatíng to thaÈ arrest, Partner-l aEaín Eold
that tlle Group I Funds and the Group II Funds had to, hÍre an
independent cerLified pubJ.ic accountanL to conduct an audit of all
of the,4ssets in the funds and that, orl or about,January 8, 20A9,
NADEL agreed to the independent audit, Partner-1 further stated
that, orr or about üanuary J-3, 2009, Partner-2 sent NÀÐEL a 1etÈer
relating to the hiring of an independent certifíed public
accountant to conductr the audiÈ.
15. Based on my conversations with anotlrer FBI agent
wÏro spoke wíthr other Iaw enforcement officers, I fiave learned
that, or or about 'January L4, 2009, family'members of ARTHUR G.
NADEL; the d.efendanÈ, reported to the police in Sarasota, Florida,
that NAÐEL had left a note reflecting that Lre was no longer going
to be around, and thaL NADEL's whereabouts were unknown.
l-6. Based on my conversations with ParLner-z, I learned
that, on or about January 15, 2009, certain employees wlro worked
for ARTHUR G. NADEL, the defendant, found several píeces of paper
in a shreddíng machine at NAÐEL's offices in Sarasota, Florida.
Partner-2 further informed me that ttre employees put together
several of the shredded pieces of paper and turned them over to
law enforcemenÈ offícers. Accord.ing to Partner-2, Lhe shredded
documents appeared to be several pages of a handwritten letter
from NAÐEL to Lris wife.
subseqrrent

NADEI¡

17 - ï have
ARTHUR G. NAÐEIJ,

reviewed one page of the apparent leiter
Èhe defendant, to his wife, wbich was found
in Ehe shredding machine. This handwrj-tÈen page stated, ín part,
aE fo]-lows:
frorn

ff you want to survive this mess, what
follows is for your eyes only. I strongly
suggest Èhat, you destroy ít after readÍng.
The avenues to money ttï yo,, wilt Iíkely be
blocked soon.' you must use the trust (yours)
to your benefit as much and as soon as
. Bossíble. please 1ook for the lBank] credit
card account and you wilJ- see a J-arge credj-t,
balarice that can .be üsed in the usual way or
to wíthdraw castr. Withdra$¡ as rnuch eash as
you can, âs this accounÈ míght also become
b]-ocked

'
.

f have deposited enough j-n ttre Scoop
Management acc[ount] for about a month; the
same with Tradewínd [and] Home Front Homes as
well as Iralrre]. Mtn, The ilet, Center is self
sìjrpporting, as you

know.

ALI the bÍIls will
io 3966 and I have
""*ï
closed. the pOBx [síc] . Look at a]-1 Èhe
recently paíd bitls in tlre .\package,. to see
where they staild, AIso in Èhe package are
enough document,s that I thínk wíIl do Che
tríck Lo give you compLete control and
ownershlp of what ís left, and even
documentation for divorce. SeII Lhe Subaru
if you need money. I wí1l send you a let,ter
in a day or so to telI you....
L8, O¡t or abouL ,January J-5, 2OOg, partner-2 1earned.
from the custodian of the Group r Funds and the Group rr Funds
that there was approxÍmately $350,000 ín total assets left, in the
accounts relating to the funds over which ÀRTHUR G. NADEL, the
defendant, had trading auttrority.

'

Lg

. On or

aJoout .Tanuary

20, 2OAg, I obtained

çnd
reviewed documents from tfre custodian of t}.e Group I Funds and the
Group rr Funds. These documents show that the net liguidating
valug ( rNaV" ) of the assets in ttrese fund.s declined sígnif icantly
from in or about December 2OO4 througth in or about December 2OOB,

as follows:

}itLV ending

F.und

t2/

04

NLV endLng
L2/Os

NLV ending

t2/06

VikÍng

IRA
Fu¡rd LLC

ç18 ,767

,696

çl-9 ,787 , A93

$9,

Víkíng

ç33 ,37s ,622

S25, 983,502

,979

Victory

9, 919

NL\/ endl-ng

L2/ot

NLV ending

L2/08

$1,738,703

Sz

$10, 054 , 454

ç2,036, 992

$30.929

$14, 249, 335

ç7,Ot7,679

93 , 429. 805

$4, 413

$13 , O7O, 558

çL7,746,44].:

99, 981, 754

$1, 096. 190

$2,938

Víctory
Fund Ltd.

s23,848r019

ç23

,324,295

$7, 890, 073

s2 , 586, 116

s7 6 ,9L3

Scoop ReaI
Estatse LP

çL6

s20, 435, 896

çl'î t597,3L9

ç2,689,

O54

$2, 119

Scoop

9300, 782

ç7,274,679

#LL,563 ,27 4

ç4 ,5O2, 449

$L, 344

Fund

IJLC

VaLhalla

InvestmenL

çL9 ,448

53

,923

Partners

IRA Fund
Lrd.

Capital
tI,c

,670.254

20. As reflected in paragraph 19, the documents
provided by the custodian relating to the vaLue of ttre assets in
ttre Group I Funds and the Group If Funds, the representations that
"ARTHUR G. NADEL, the d,efendant, made to investors relat,i-ng to
positive returns on the investments and ttre total amount of assets
ín the Group r Funds and the Group rf Funds were.false. The
documents furtl.er demonstrate that the monthly account statements
ttrat investors received, as discussed ín paragraphs 6(d), B(c),
8 (f ), 8 (i) , and. L2 above, were'false
2¡-. OÈtrer law enforcement officers with whom ï have
spoken recently have toLd me tfiat; ARTHUR G. NADEI:,.Ltre defendant,
has been missÍng sínce on or al¡out iranuary 14, zoog and that, as

of today's date, NADETJ's whereabouE.s are unknow¡l, partner-2 and.
law enforcement offÍcers fiave ínformed me that NADEL has a
residence Ín Sarasota, Florida, a residerrce in Norttr Carolina t
fíve-hundred acres of a development in North Carol-ina, a I-,ear 354
plane, and a CiLation Two pI-ane.

,

WHEREFORE, the deponent prays that an arrest warrant
issued for ÀRTHUR G. NAÐEL, the defendant, and that tre be
irnprisoned or bailed

G.

RIORDAN

AGENT

FEDERAÍJ BUREAU

Sworn
21-sE

to before

me

day of ,January

this
2OO9

B. PITMAN
CHTEF
mpg.F1 lvrlierstnate JUDGE
SOUTHERN DTSTRICT OF NET¡I YORK

10

OF TNYESTTGATION

be