ANDREW FRANZONE Arrested Over Alleged $40 Million Fraud
Audrey Strauss, the United States Attorney for the Southern District of New York, and Philip R. Bartlett, Inspector-in-Charge of the New York Office of the U.S. Postal Inspection Service (“USPIS”), announced today the arrest yesterday afternoon of ANDREW FRANZONE, the founder and former general partner of FF Fund I L.P. on charges of securities fraud and wire fraud for his role in a scheme to fraudulently induce more than 100 investors to invest approximately $40 million in his fund by, among other things, lying about the fund’s investment strategy, liquidity, and amount of assets under management. FRANZONE was arrested yesterday afternoon in Fort Lauderdale, Florida, on a criminal complaint (the “Complaint”) and will be presented before a magistrate judge in the Southern District of Florida this afternoon.
Manhattan U.S. Attorney Audrey Strauss said: “Andrew Franzone allegedly promised his
clients access to his successful liquid trading strategy and consistent,
positive trading returns. As alleged,
those promises were lies. Franzone lied
about his fund’s investments and performance, and he lied in promising clients
that they had could readily access their invested capital. While his investors lost money, Franzone
enriched himself. We will continue to
work with our law enforcement partners to protect investors from these types of
deceptive practices.”
USPIS Inspector-in-Charge Philip R. Bartlett said: “Mr. Franzone allegedly misled investors to believe his fund was liquid and he could cover their redemption requests, in a scheme to lure them in to investing in his hedge fund. This should be a reminder that greed has no boundaries and does not care about a favorable portfolio. Postal Inspectors remind all investors to thoroughly check offers, and if they sound too good to be true, keep your money in the bank.”
As alleged in the Complaint unsealed today in Manhattan
federal Court[1]:
FRANZONE co-founded Farrell Franzone Investments LLC in
2010. FRANZONE described Farrell
Franzone as an opportunity for investors to invest, through the purchase of
limited partnership (“LP”) interests, in a hedge fund purporting to trade
preferred securities and options and to maintain a highly liquid portfolio for
its investors. FRANZONE renamed the fund
FF Fund I (“FF Fund”) in 2014, and served as its general partner from that time
until approximately September 2019.
In connection with marketing the FF Fund to investors,
FRANZONE touted FF Fund as a “multi-strategy investment program … focus[ed] on
three unique asset classes: the preferred stock market, the option market, and
the private investment portfolio.” When
discussing FF Fund, FRANZONE assured investors that FF Fund was focused on
trading in the preferred securities and options markets, which afforded its
investors access to quarterly liquidity, and that FF Fund had a track record of
consistent positive trading returns since its inception in August 2010.
FRANZONE’s representations about FF Fund’s strategy,
liquidity, and performance were largely fabricated. Instead of engaging primarily in preferred
securities and options trading that ensured the FF Fund’s liquidity, FRANZONE
instead diverted more than 80% of FF Fund’s capital to high-risk, illiquid private
investments, many of which were either worthless or significantly
impaired. FRANZONE also misappropriated
FF Fund’s assets to fund his own personal business interests, including the
purchase of an airplane hangar, and lied to investors about FF Fund’s
performance and assets under management.
Through these and other fraudulent misrepresentations and
omissions, FRANZONE induced over 100 investors to invest more than $40 million
in FF Fund. Despite showing investors
positive trading returns as late as 2019, FF Fund was unable to fulfill
redemption requests in early 2019 and is currently in the process of being
liquidated.
FRANZONE, 44, of Fort Lauderdale, Florida, is charged with
one count of securities fraud, which carries a maximum potential sentence of 20
years in prison, and one count of wire fraud, which carries a maximum potential
sentence of 20 years in prison. The
maximum potential penalties are prescribed by Congress and are provided here
for informational purposes only, as any sentencing of the defendant will be
determined by the judge.
Ms. Strauss praised the investigative work of the USPIS and
thanked the U.S. Securities and Exchange Commission, which has separately filed
a civil action against FRANZONE and FF Fund Management.
This case is being handled by the Office’s Securities and
Commodities Task Force. Assistant United
States Attorney Kiersten A. Fletcher is in charge of the prosecution.
The allegations contained in the Complaint are merely
accusations, and the defendant is presumed innocent unless and until proven
guilty.
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