Hedge Fund Manager Who Bilked Relatives Out of $25 Million Sentenced to Over 10 Years in Federal Prison

After admitting that he ran a Ponzi scheme that targeted family members and close friends and caused them to lose more than $25 million, the founder and manager of two Beverly Hills hedge funds was sentenced today to 121 months in federal prison.

Bradley L. Ruderman, 46, of Beverly Hills, was sentenced this afternoon after pleading guilty in August to two counts of wire fraud and two counts of investment adviser fraud related to a Ponzi scheme he ran from 2003 through 2009.

United States District Judge John F. Walter sentenced Ruderman for collecting more than $44 million from investors in his two hedge funds—Ruderman Capital Partners and Ruderman Capital Partners A—based on promised annual returns as high as 60 percent. Ruderman admitted that he used much of the money to pay his own expenses and that he hid the misappropriation of investor money from his victims by sending them phony account statements that purported to show gains in their accounts. When the funds collapsed last April, Ruderman's investors had lost more than $25 million.

Judge Walter denounced Ruderman’s crimes because they targeted relatives and close friends: “He stole from individuals he knew for many years, who cared about him, had invited him into their homes and shared meals with him, who had known him since he was a child.” Imposing the 121-month sentence, Judge Walter noted the recent “staggering increase” in investor-advisor frauds and said that he wanted to “send a message that these crimes will result in significant prison sentences.”

To carry out his fraud, Ruderman used false and misleading statements to persuade family members, friends and others to invest in his two hedge funds. Ruderman lied about profits made by the funds, repeatedly sent false account statements to investors, and reported that he had $206 million in funds under management, when he actually had only $588,246 under management at the beginning of this year.

At today’s hearing, Judge Walter cited a December 2008 letter that Ruderman sent to falsely reassure victims that their money was safe. In the letter, Ruderman deplored the “chicanery” of Bernard Madoff and assured victims that “such disgraceful practices will never happen under my watch.” However, Judge Walter noted that when Ruderman sent this letter to victims, “he was stealing their money.”

An investigation by the FBI revealed that during the course of the fraud, Ruderman spent at least $8.7 million of investor money on personal expenses, including $200,000 each summer for a rented beach house in Malibu, two Porsches, $53,930 on sporting events, $896,000 in credit card charges, and $327,000 in cash expenditures. Ruderman further admitted that he lost $5.2 million of investor money in clandestine poker games held on a regular basis in a suite at a luxury Beverly Hills hotel.

During the sentencing hearing, a victim told Judge Walter that Ruderman was no different than a convenience store thief or a bank robber except that Ruderman “committed his crimes with manicured nails, a great tan, wearing an Armani suit, and the getaway car was a Porsche that his victims all paid for.”

Ruderman also pleaded guilty to a misdemeanor charge of failing to file his federal income tax return for 2007, a year in which he admitted earning more than $2 million. As part of his plea agreement, Ruderman admitted that he failed to report income every year since 2004. He has agreed to file tax returns for those years and to resolve all taxes, penalties and interest due to the government.

In addition to the 121-month prison term, Judge Walter also ordered Ruderman to pay $27,585,849 in restitution. Ruderman was ordered to surrender to begin serving his prison sentence on February 1.

This case was investigated by the Federal Bureau of Investigation and IRS-Criminal Investigation.

In April, the U.S. Securities and Exchange Commission obtained a court order against Ruderman, see: http://www.sec.gov/news/press/2009/2009-96.htm.