On Monday, the Securities and Exchange Commission filed a complaint against recent Yale graduate Omar Zaki ’18 for misleading investors in financing an unregistered hedge fund he was operating as an undergraduate student in New Haven.
Zaki settled with the commission on Monday without admitting or denying its findings. He agreed to pay $25,000 in fraud charges –— which he must pay within the next 2 1/2 years — and is barred from working in the investment industry for the next three years. Zaki will not face prison time, as per the settlement.
According to the SEC, the fund was founded in the fall of 2016 by Zaki and “Individual A,” a law student at the time who is not named in the complaint.
From January 2017 to February 2018, Zaki and Individual A succeeded in raising roughly $1.7 million from 11 investors. The duo created investor prospectuses with false trading history, investment returns and management teams. Zaki and Individual A allegedly told investors that the fund managed between $2 and $5 million — when the fund never managed more than $1.3 million — and wrongly reported returns in excess of 80 percent from December 2016 through early March 2017. The fund did not conduct any trading at all until June of 2017.
According to the SEC, Zaki told investors that his firm used an algorithm that had produced massive returns up to 114 percent over a 10-year period. However, the algorithm was “never available to the Fund prior to 2017 and was never deployed.”
The SEC’s complaint said that the fund’s investment adviser — a legal entity that is paid to advise individuals on investing and is prohibited by law from giving advice known to be deceitful or fraudulent and from acting as a principal on their own accounts — was not registered with the commission or any state securities regulator.
The complaint said that Zaki and Individual A were the investment adviser’s managing members when it was formed in November 2016. According to Connecticut’s business registry, in November 2016, Zaki established a company called Armitage, LLC with partner Sami Ahmed LAW ’17. The company’s headquarters are located at 96 High St., according to the state’s business registry.
Ahmed did not respond to requests for comment regarding his former management position at Armitage or his personal and professional relationship with Zaki.
“My family members and I were among the investors victimized by Omar Zaki’s fraudulent activities,” Ahmed said in an email to the News. “We lost considerable amounts of money from his schemes.”
According to the SEC’s complaint, $1 million in investors’ funds were held in separately managed brokerage accounts, “the majority of [which] were in accounts owned by Individual A and his family.”
Zaki is represented by notable fraud lawyers, Bradley Bondi, who is an expert in securities fraud and white collar defense; he also represented Tesla and Elon Musk during Musk’s tweeting scandal, which triggered a federal investigation in August 2018, and served on President Donald Trump’s presidential transition team. Bondi did not respond to multiple requests for comment on Tuesday.
Bondi is not the only person involved with this case to have a Trump connection. Ahmed, the aforementioned Yale Law graduate and listed principle of Zaki’s LLC, clerked from 2017-2018 for Timothy Tymkovich, the Chief U.S. Circuit Judge of the United States Court of Appeals for the Tenth Circuit in Colorado who was named by Trump as a potential Supreme Court nominee in 2016, according to Ahmed’s profile on Kellogg, Hansen, Todd, Figel & Frederick: P.L.L.C., a law firm based in Washington, D.C. where he works as an associate.
Ahmed did not respond to questions about his relationship with Tymkovich or if it had any influence on Bondi choosing to represent Zaki.
The unraveling of Zaki’s fraud began when one of the investors, who is unnamed in the SEC complaint, considered opening offshore funds with Zaki and became suspicious when Zaki refused to allow them to directly verify the fund’s accounts.
Zaki allegedly provided investors with screenshots, written presentations and trading logs that were fabricated to inflate the Fund’s returns.
The U.S. Securities and Exchange Commission was founded in 1934.
Caroline Moore | firstname.lastname@example.org
Correction, Apr. 3: A previous version of this story incorrectly stated that Timothy Tymkovich was a part of Trump’s transition team. In fact, he was named by Trump as a potential nominee for the U.S. Supreme Court.