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New Jersey Investment Fund Co-founder Pleads Guilty in $294M Securities Fraud
John Hughes of Mahwah admits to deceiving investors and concealing massive trading losses.
Morris County, NJ — John Hughes, 56, a former co-founder and high-ranking executive of Prophecy Asset Management LP, admitted in Trenton federal court today to conspiring in a scheme that defrauded investors out of a staggering $294 million. The announcement came from U.S. Attorney Philip R. Sellinger.
At the forefront of this fraud was Hughes’ admission of fabricating a façade of security for investors. The accused claimed Prophecy implemented a “first-loss” trading strategy, insinuating funds were distributed among various traders or sub-advisors. These sub-advisors, according to Hughes, were responsible for supplying cash collateral to secure potential losses. Such false claims misled victims into believing their investments were secure and low-risk.
In stark contrast to the promises made, Hughes and a co-founder primarily allocated funds to a single sub-advisor without requiring him to safeguard potential losses with cash collateral. Deceitfully, they permitted his trading even after he incurred around $290 million in losses, surpassing the presumed collateral. The cover-up was extensive, employing fictitious transactions and doctored documents to hide the deteriorating state of the funds from investors.
“John Hughes admitted today that he orchestrated a complex and sophisticated scheme to bilk investors of their hard-earned money,” stated U.S. Attorney Philip R. Sellinger.
He stressed the importance of securities fraud enforcement and how Hughes violated the trust placed in him.
Richard Langham, Acting Special Agent in Charge of the FBI’s Philadelphia Division, echoed these sentiments. “Hughes actively led clients to believe they were investing responsibly…Securities schemes like this can be simply devastating for the victim investors.”
The consequences of these fraudulent actions were dire. Investors faced over $294 million in losses after trading losses decimated Prophecy’s funds.
The charge against Hughes brings with it the potential of five years in prison and a fine of up to $250,000. His sentencing is set for March 21, 2024. Parallel to this, the U.S. Securities and Exchange Commission (SEC) has lodged a civil complaint against Hughes.
In recognizing the efforts behind today's revelation, U.S. Attorney Sellinger extended his appreciation to the FBI, especially to Acting Special Agent in Charge Richard J. Langham of the Philadelphia Division, and the Securities and Exchange Commission, led by Gurbir S. Grewal, Director, Division of Enforcement. The case against Hughes is managed by Assistant U.S. Attorney Blake Coppotelli of the U.S. Attorney’s Office Economic Crimes Unit in Newark.
