A former Detroit hedge fund manager has been charged with defrauding investors of more than $27 million, according to a press release from the US Department of Justice.
The office of Dawn Ison, U.S. Attorney for the Eastern District of Michigan, announced Wednesday that it has charged Andrew Middlebrooks, 30, of Dallas, with one count of wire fraud. The charge carries penalties of up to 20 years in prison, a $250,000 fine and up to three years of probation.
From May 2017 to May 2022, Middlebrooks, CEO, Chief Investment Officer, and Portfolio Manager of EIA All Weather Alpha Fund 1 Partners, “solicited clients for EIA saying he was able to exploit “inefficiencies “from global stock markets, which would result in significant returns for investors,” the statement said. catastrophic.”
The case against Middlebrooks “is far from a typical fraud case in many respects,” according to an email from Michael Bullotta, an attorney with Bullotta Law PLLC in Detroit, who said he represents the defendant.
“The mistake Andrew and others working with him made was that when some investments started losing money, instead of admitting that fact, Andrew tried to right the ship with investments. riskier ones that didn’t pan out, resulting in substantial losses to the fund,” Bullotta’s email reads in part. “His crime was to conceal those losses in order to buy more time for him and his partners to make a his fund.”
Middlebrooks, Bullotta wrote, “admitted he could not resolve the situation and self-reported the fund’s losses and his concealment of those losses to the United States Attorney’s Office in Detroit.”
Bullotta did not immediately respond to a follow-up message from Crain’s on Friday requesting records of the “self-declaration” from Middlebooks. A message sent to the US Attorney’s office in Detroit was also not immediately returned on Friday afternoon.
The case against Middlebrooks — who was a Detroit resident, according to a court filing — went to federal court in Detroit.
“Middlebrooks used a seemingly legitimate business, sophisticated methods and an intricate web of lies to deceive his victims, but his crime is nothing more than theft and unbridled greed. Middlebrooks’ ability to convince victim-investors that his false promises were true allowed him to steal their money,” Ison said in the statement. “Today’s charge demonstrates our commitment to ensuring the integrity of our financial systems.”
The U.S. Securities and Exchange Commission previously alleged fraud by the hedge fund manager in May, while Crain’s reported at the time.
Specifically, court documents indicate that last February, Middlebrooks told investors that EIA had generated positive returns in 2020 of over 135%. In fact, the fund suffered losses that year of more than $13 million.
“Furthermore, as part of the fraud scheme, Middlebrooks lied to investors about how their money would be used,” according to the court filing. “Middlebrooks told investors that their money would be used exclusively for trading and that money used for fees and expenses would be disclosed in accordance with the EIA investment agreement. In fact, Middlebrooks took money from the fund for living expenses and transferred money from the fund to his wife’s business.”
The investigation into Middlebrooks’ alleged fraud was led by the FBI.
“Mr. Middlebrooks allegedly lied and stole money from investors and potential investors by providing false financial statements and inflating fund returns,” said James Tarasca, special agent in charge of the FBI’s Detroit Division. . “This case is an example of the FBI’s commitment to working with our partners to investigate those involved in financial fraud and to protect the financial well-being of honest, hard-working Americans.”