Summit Man, CEO of Investment Fund, Charged in $294 Million Securities Fraud Conspiracy

Federal prosecutors allege Jeffrey Spotts misled investors about risk strategy and concealed massive trading losses in multimillion-dollar investment fraud scheme.

TRENTON, N.J. — Jeffrey Spotts, 58, of Summit, New Jersey, and former CEO and co-founder of Prophecy Asset Management LP, has been formally charged in a wide-ranging securities fraud conspiracy that federal prosecutors say defrauded investors out of approximately $294 million. Spotts was arraigned in U.S. District Court in Trenton on multiple federal charges related to the scheme, Acting U.S. Attorney and Special Attorney Alina Habba announced Tuesday.

According to the unsealed indictment, Spotts faces four counts:

• Conspiracy to commit wire fraud

• Wire fraud

• Conspiracy to commit securities fraud

• Securities fraud

Each wire fraud-related charge carries a maximum penalty of 20 years in prison and a $250,000 fine, while the securities fraud count carries a potential sentence of up to 20 years in prison and a $5 million fine. The conspiracy to commit securities fraud charge carries a maximum of five years in prison.

Spotts’s co-conspirator, John Hughes, 58, of Mahwah, previously pleaded guilty to securities fraud in connection with the same case. His sentencing is scheduled for March 10, 2026.

🏦 Fraudulent Investment Strategy Alleged

Spotts and Hughes co-founded Prophecy Asset Management, which at its peak managed over $360 million in investor funds. Between January 2015 and March 2020, they allegedly solicited money under the guise of a “first-loss” investment strategy, which claimed to limit risk by requiring third-party traders, or sub-advisors, to post cash collateral as a safeguard against losses.

Prosecutors allege that these representations were knowingly false. Instead of diversifying investments among several sub-advisors as advertised, the pair channeled most of the fund’s capital to a single sub-advisor—who was not required to provide adequate collateral and ultimately lost approximately $290 million of investor funds.

Despite mounting losses, Spotts and Hughes failed to take corrective actions such as suspending or terminating the sub-advisor, as they had promised investors they would. Instead, they concealed the extent of the losses through forged documents, sham transactions, and collaboration with the sub-advisor to mislead both investors and Prophecy’s auditors.

💼 Cover-Up and Civil Actions

The indictment further alleges that the defendants used the sub-advisor’s cooperation to mask their own investment failures. Fake documents and cash infusions were allegedly used to obscure the true financial state of Prophecy’s operations.

The scheme eventually led to the collapse of Prophecy’s funds, resulting in hundreds of millions of dollars in losses for dozens of investors. The U.S. Securities and Exchange Commission (SEC) has filed a civil complaint against Spotts based on these and additional allegations and had previously filed similar civil charges against Hughes.

⚖️ Investigation and Prosecution

The case is being prosecuted by Assistant U.S. Attorneys Aaron L. Webman (Newark Economic Crimes Unit) and Martha K. Nye (Attorney-in-Charge, Trenton Office). The investigation was led by the FBI’s Philadelphia Division, with assistance from the SEC’s Division of Enforcement, under the direction of Margaret Ryan.

Acting U.S. Attorney Habba emphasized the scale of the deception, crediting law enforcement and regulatory partners for their roles in exposing the alleged scheme.

Note: The charges are currently allegations, and Jeffrey Spotts is presumed innocent unless and until proven guilty in a court of law.