CLEVELAND (HedgeWorld.com)–Another Buckeye State investment firm has caught the eye of the Securities and Exchange Commission, which filed a complaint in U.S. District Court against David A. Dadante, 52, alleging seven counts of securities fraud in relation to the IPOF Fund, managed by Mr. Dadante since 1999.
Mr. Dadante, according to the SEC complaint, ran the $50 million IPOF Fund as a Ponzi scheme, redeeming old investors with the assets of new investors while spending millions for his own purposes. The complaint also alleges that he misrepresented the fund's investment strategy and acted as an unregistered investment adviser.
In early December, former investors of IPOF filed a suit charging Mr. Dadante with stealing money from the fund, falsifying account statements and preparing fake securities-trading confirmation slips, while paying himself approximately $900,000 in 2005.
Neither that suit nor the SEC complaint specifies how much money investors lost to Mr. Dadante's alleged improprieties, but following the investors' lawsuit a federal judge froze $24 million in assets. IPOF has paid out approximately $25 million to investors, according to the firm, and Mark Dottore of Cleveland-based Dottore Companies LLC was appointed by the court as a trustee to oversee the fund while the lawsuit plays out.
On a third front, the U.S. Attorney's Office has launched a criminal investigation of Mr. Dadante in conjunction with the Federal Bureau of Investigation, according to Assistant U.S. Attorney Bill Edwards.
Neither Mr. Dadante nor his lawyer, Mark Stanton, could be reached for comment Thursday [April 20].
The Euclid, Ohio-based IPOF fund was established by Mr. Dadante in 1999, and all told raised approximately $50 million from at least 110 investors in five states, most of whom reside in or around Cleveland; investors included a restaurateur family, a Teamsters union president and the owners of a construction business. Mr. Dadante offered limited partnership interests in the fund, and initially presented the investment strategy as buying and selling stocks during companies' initial public offerings. Later, he told IPOF investors that he had changed the fund's strategy to focus on large-block equity day trading.
Mr. Dadante claimed historical returns of 26% to 32% in 1999 and 2000, respectively, according to the SEC complaint. In solicitation materials sent to potential investors he guaranteed returns of 10% to 20% per year, and he is alleged to have presented investors with phony statements showing returns along those lines. Mr. Dadante also claimed a relationship with Goldman Sachs, where investors' assets were supposedly pooled and a Goldman vice chairman assisted in the management of IPOF's investment strategies.
In reality, the SEC complaint alleged, IPOF pursued neither IPO stock offerings nor large-block equity day trading; there was no business relationship with Goldman Sachs and no profits to speak of in 1999, 2000, or any other year.
