By Stewart Bishop, Law360
Law360, New York (February 14, 2019, 6:00 PM EST) — Aberon Capital Management principal Niket Jain on Thursday denied criminal charges brought over an alleged $20 million scheme to con investors in the Cayman Islands hedge fund.
Jain was arraigned before U.S. District Judge P. Kevin Castel in Manhattan, where he pled not guilty to securities fraud, wire fraud, conspiracy and obstruction of justice.
Prosecutors say from about 2010 to 2014, Jain and another managing member of Aberon raised around $20 million from investors and falsely claimed the fund was chalking up capital gains, when it was actually hemorrhaging cash.
For example, the indictment, which does not name the fund, says an unnamed investor was falsely informed of an $18 million account balance in 2011, when that investor’s balance had been in the range of $7 million around that time.
Jain also doctored financial data that was supplied to Aberon’s auditor, and cooked up falsely inflated net asset valuation statements, according to the government. Prosecutors further claim that Jain lied to the U.S. Securities and Exchange Commission at a January 2018 sit-down at which he was asked about false documents.
An attorney for Jain, Vinoo P. Varghese, told Law360 after the arraignment that Jain has led a law abiding life.
“He’s looking forward to clearing his name,” Varghese said.
Jain was arrested Jan. 29, and ordered released on a $300,000 bond, secured by $10,000 in cash or property. He’s due back in court on April 17.
The indictment doesn’t name Jain’s partner at Aberon, but related proceedings indicate it is Aberon co-owner Joseph Krigsfeld. Jain sued Krigsfeld in state court last year, saying it was Krigsfeld that was cooking the books and lying to investors. Krigsfeld is not charged in the criminal case against Jain.
In the state court action, Jain paints himself as a victim of a crooked partner who “appeared to have all the trappings of a well-connected Russian oligarch” and convinced Jain to form the fund in 2009.
Jain claims he put his own life savings into Aberon only to see them lost by Krigsfeld’s trading. As of October 2012, under Krigsfeld’s control, the Aberon funds had lost over $29 million and had assets under management of less than $500,000, according to the suit.
Aberon and Krigsfeld were also the subjects of an SEC enforcement action, which resulted in a May 2018 cease-and-desist order. According to that order, Aberon was censured, while Krigsfeld was hit with a $160,000 civil penalty and was barred from investment advisory activities.
Jain is represented by Vinoo P. Varghese of Varghese & Associates PC.
The government is represented by Tara M. La Morte of the U.S. Attorney’s Office for the Southern District of New York.
The case is U.S. v. Jain, case number 1:19-cr-00059, in the U.S. District Court for the Southern District of New York.
–Additional reporting by Pete Brush. Editing by Michael Watanabe.