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The Securities and Exchange Commission says Scott Ira Kupersmith, who used to live in Alpine and is now in Florida, portrayed himself to broker-dealers as a money manager for hedge funds or private investors in order to open accounts in the names of purported investment funds.
Together with an alleged accomplice, Frederick Chelly, Kupersmith bought and sold the same stock in different accounts – frequently on the same day – “with the intention of profiting on swings up or down in the stock price,” the SEC said.
They promised extraordinary returns, the government said: One victim was promised 43% every three months.
“To perpetuate the scheme, [they] opened more than half a dozen brokerage accounts at multiple brokerage firms located in New Jersey and elsewhere,” U.S. Attorney Paul S. Fishman said this afternoon. “In order to induce the brokerage firms to open these accounts, Kupersmith falsely represented that he had a personal net worth of approximately $5 million and that he controlled a hedge fund in Manhattan with assets of as much as $20 million.
“Kupersmith also misappropriated the personal identification information of a family member and a friend and used that information to open additional brokerage accounts. Once these accounts were opened, Kupersmith used them to make large-dollar-value securities trades.”
With these accounts opened, Kupersmith and Chelly were able to move money around to cover some of the trades, the government alleges in a criminal complaint filed in U.S. District Court in Newark.
For instance, the complaint says, Kupersmith bought 5,000 shares of Baidu, Inc. stocks at one brokerage firm and, on the same day sold the same number of shares through another account to cover the cost. At no point were the partners using their own money, the government alleges.
When the trades were profitable, Kupersmith and Chelly deposited the profits into offshore accounts, or spent the money on private limousine services, luxury hotel rooms and adult entertainment clubs – or to make Ponzi-like principal and interest payments to existing investors, the SEC said.
When deals tanked, it says, the partners left broker-dealers to settle the trades at a significant loss.
In November, 2009, Kupersmith placed orders for $15 million worth of Baidu on behalf of two brokerage firms. But he “failed to deliver any of the shares of Baidu that he had agreed to sell,” the complaint says.
As a result, the two firm were forced to buy 48,700 share of Baidu on the open market — at $600,000 more than they originally paid, the government says.
Manhattan District Attorney District Attorney Cyrus R. Vance Jr. said the scheme was “little more than a confidence game using offshore banks, shell companies, and fraud….”
“Kupersmith and Chelly engaged in a classic ‘heads I win, tails you lose’ scheme to trade risk-free at the expense of broker-dealers,” added George S. Canellos, director of the SEC’s New York Regional Office.
Eventually the victims got wise and contacted federal authorities.
Kupersmith, 46, formerly worked with Strategic Alliance Partners, LLC, created in 1993 by former major league baseball player and three-time All Star Graham “Chip” Conklin, a Ridgewood High School graduate who has become a successful entrepreneur.
Kupersmith remained on when the company folded into Studley, an international commercial real estate firm, which established a North Jersey office that is now located in Continental Playa III just off Route 4 in Hackensack after moving five years ago from a smaller space in Rochelle Park.
FBI agents arrested Kupersmith, 46, this morning at his Boca Raton home, U.S. Attorney Paul S. Fishman said. Kupersmith has an initial appearance scheduled Friday in federal court in West Palm Beach, Fla.
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