Davian Capital Advisers fund manager Anthony Davian has pled guilty to 14 counts of securities fraud, mail fraud, wire fraud, and money laundering that cost investors $1.8 million between 2008 and 2013 in a classic Ponzi scheme.
“This defendant deceived clients to line his own pockets,” said U.S. Attorney Steven Dettelbach, reports James F McCarty for Cleveland.com. “We will continue to aggressively pursue cases in which investors are cheated out of their savings.”
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Davian created a number of different funds including Davian Capital, Rubber City Pure Alpha, the Cleveland Precious Metals Fund and others, and he convinced investors that he already had hundreds of millions in assets under management among his various funds. By falsifying documents he was able to convince at least 20 people to give up a couple hundred thousand a piece, using the money for his personal expenses and to cover outflows when someone wanted to make a withdraw.
Davian was an active, and caustic, tweeter
Some people in the hedge fund community might remember Davian as @hedgieguy on Twitter, where he had a reputation for criticizing other people in the investment community. When the signs started pointing to there being a major problem with his fund last summer, people weren’t exactly shocked.
Davian may have started legitimately
Based on his tweets over a number of years, there has been some speculation that he started out as a legitimate short seller, making hay in 2010 on Chinese reverse merger shorts. The idea was that Chinese companies would merge with a publicly listed company to get the benefits of going public without having to go through the IPO process. Enough of these companies had boosted their numbers that short sellers (notably Carson Block at Muddy Waters) were able to short and then expose a number of them.
But 2012 and 2013 were brutal years for short sellers, and a fund manager who was basically riding on others’ ideas was out of luck. He reportedly brought in a few analysts around that time, increasing his operational expenses, and when he started offering $30 monthly subscriptions for analysis, other traders realized that something was off. When the Securities and Exchange Commission pressed charges last August they called his investment strategy “figments of Davian’s imagination.”
Even if he started out with the intention of being a legitimate hedge fund manager (which might not even be true), there’s no arguing that he started ripping off clients when the market turned against him.