Sarasota hedge fund manager Arthur Nadel will appear in federal court this afternoon in hopes of being freed on bond while authorities continue their investigation into his dealings.
Nadel, who is charged with one count of wire fraud and one count of securities fraud, is believed to have bilked investors out of hundreds of millions of dollars by advertising that his hedge funds were earning stellar returns, when in fact they were losing money.
If convicted, Nadel, 76, faces a maximum of 40 years in prison for the two charges. He also faces a $250,000 fine for the wire fraud charge and the greater of $5 million or twice the gross gain or loss from the offense in fines for the securities fraud charge.
Nadel disappeared Jan. 14 and his car was found the following day at Sarasota-Bradenton International Airport.
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Investigators found the remains of a letter in a shredding machine at his Scoop Management Inc. offices on Sarasota’s Main Street instructing his wife, Peg, about how to access money in his absence.
“I strongly suggest that you destroy it after reading,” part of the letter read. “The avenues to money for you will likely be blocked soon.”
A trio of funds Nadel oversaw were billed as having net assets of more than $300 million in reports to investors at the end of last year, when in fact their total value was only $506,000, according to investigators.
The day Nadel disappeared, he was expected to disburse $50 million in redemptions to investors from the six total funds he managed.
About 600 investors from throughout the country were expecting their money but didn’t get it.
Nadel, who is in the custody of the U.S. Marshals Service, turned himself in to the FBI in Tampa on Tuesday and is scheduled to appear at a bond hearing at 1:30 p.m. today in federal court in Tampa.
Nadel’s attorneys requested at an initial hearing Tuesday that he be allowed to remain free on house arrest until the case proceeds to trial.
A federal magistrate declined the request, however, citing the amount of money at stake in the case.
Nadel’s attorneys have also asked that the case be moved to the Southern District of New York. According to authorities, Nadel used a New York City brokerage fund to wire more than $1 million to bank accounts he controlled without authorization.
Ellen Podgor, associate dean of faculty development and electronic education at Stetson University College of Law in Gulfport, said the fact that Nadel turned himself in may sway the court to allow him to remain at home.
“I think it makes a difference because one of the factors that a court looks at is the risk of flight,” Podgor said. “So if someone turns themselves in, then they’re less likely to flee. In this case you can do a lot of comparisons to Bernie Madoff, who is currently out on bond, although he’s home on home arrest.”
Podgor referred to Bernard Madoff, the New York hedge fund operator who is accused of defrauding investors out of more than $50 billion. He was allowed to post a $10 million bond after he was arrested.
Some have drawn comparisons between the Madoff and Nadel cases.
While Nadel will likely be made to pay for his crimes if, indeed, he is found guilty, a bigger question remains as to how much, if any, of the funds investors will be able to recoup.
Sarasota attorney Drew Clayton is talking with about 24 investors who together represent about $24 million in losses to the funds Nadel ran. Clayton is monitoring what a court-appointed receiver is doing to recover assets linked to Nadel before deciding to go forward with any actions on behalf of clients.
“We’re working toward trying to make that decision right now, and a lot of it depends on what the receiver does,” Clayton said. “Right now private attorneys are not going to be pursing Art Nadel because the receiver is already doing that.”
Sarasota attorney Morgan Bentley of the Williams Parker law firm said he now represents 46 people with losses of about $50 million.
Clayton said some of the loss figures his clients and others have stated have been inflated above the principal they invested because the gains that were reported on their statements were not real.
Already, Tampa attorney Burton Wiand, the receiver in the case, has tracked millions of dollars that Nadel funneled to himself and his wife as well as various entities in which he had an ownership stake.
Those entities include the Venice Jet Center and the Tradewind facility at a Georgia airport, where there was kept various aircraft, including a $2.1 million Cessna Citation II jet and a $2.9 million Lear Jet.
Wiand has started a Web site for investors seeking information about recovering their assets at www.nadel receivership.com.
On the site Wiand states that it “appears the value of money or other assets the Receiver may recover will be less than the value of all original investments.”
That wouldn’t surprise one Bird Key investor, who asked to remain anonymous, but whose identity was verified through police reports.
She had more than $100,000 invested in one of the funds and doesn’t expect to see it again.
“I think somewhere along the way Nadel wasn’t able to produce the returns that he was advertising,” she said. “I think he just tried to keep it going and keep it going. I have to believe at some point when the losses got out of control, then it kind of found its way into becoming a Ponzi scheme and he had to keep bringing in new investors to keep the existing investors satisfied. He couldn’t hide anymore. He couldn’t come up with that $50 million (for the distribution). It just wasn’t there and the whole thing collapsed.
“Does anybody believe they’re going to find 300 and some million hiding somewhere? I don’t. If they found $10 million I would be surprised.”