A hedge fund purported to be operating in metro Detroit has been accused of fraud, to the tune of about $39 million, by federal securities regulators.
The U.S. Securities and Exchange Commission, in a complaint filed in federal court in Detroit last week and unsealed on Tuesday, alleges that Andrew M. Middlebrooks, formerly of Detroit and the alleged sole owner of EIA All Weather Alpha Fund I Partners LLC, was “allegedly engaging in a multi-year scheme that included the misappropriation and misuse of investors’ funds,” according to a news release from the federal agency.
Middlebrooks, the complaint alleges, was wildly misstating to investors the types of returns they would see. In actuality, according to the complaint, the fund was taking on multimillion dollar losses.
The SEC said it obtained emergency relief from the U.S. District Court in the Eastern District of Michigan, which includes a temporary restraining order against EIA and Middlebrooks, as well an asset freeze against the defendants and named relief defendants, largely consisting of affiliated funds and companies.
A message left for Middlebrooks seeking comment on Wednesday afternoon was not returned.
Middlebrooks, 30, was a resident of metro Detroit from approximately 2017 until February 2020, and now claims to be a resident of Dallas, according to the complaint, which notes that Middlebrooks “repeatedly asserted his Fifth Amendment right against self-incrimination.”
EIA’s LinkedIn page lists its principal address as a home in Detroit near Woodward Avenue and West Grand Boulevard.
The complaint alleges that over the last five years, Middlebrooks’ long and short equity position hedge fund raised $39 million from more than 100 investors, and over that time period “made numerous false and misleading statements to the fund investors and prospective investors, wildly misstating the Fund’s performance and claiming that its financials were audited when they were not.”
Additionally, the complaint states that Middlebrooks’ fund was claiming cumulative returns to investors in excess of 2,500 percent. However, “in reality, the Fund suffered catastrophic losses trading losses of approximately $27 million,” according to the court filing.
The fund’s website touts multiple awards over the last several years, including “#1 Net Returns of Top Performing Relative Value Strategies Hedge Funds in 2019” from Prequin, a London-based investment data firm. Representatives from Prequin did not respond to a message seeking information on how awards are given.
Middlebrooks was also allegedly running a Ponzi scheme of sorts, misusing new money to make payments “to other investors in the fund in order to continue to deceive investors into believing that the fund was profitable,” according to the SEC statement. Middlebrooks used investor funds for personal use, such as on jewelry and credit card payments, according to the complaint.
“As we allege in the complaint, Middlebrooks lured investors by touting extraordinary performance returns and then concealed the truth of his fraud, including by fabricating documents provided to investors,” stated C. Dabney O’Riordan, co-chief of the SEC’s Asset Management Unit. “Our swift action is intended to protect investors from future harm.”
The SEC says its investigation into EIA is ongoing. Investors in the fund are encouraged to send an email to [email protected].