Florida private equity manager Elliot Smerling used a web of lies to convince several banks to extend more than $200 million in credit to his investment funds, despite the fact that the funds had virtually no no real investors or investments.
He used the money to fund a lavish lifestyle, complete with a multimillion-dollar waterfront mansion in Wellington, Florida, a London apartment in a building overlooking the Thames, and a fleet of luxury cars. . And the alleged success of his funds — and his financial backing — helped Smerling land a place on the board of directors at the University of Miami’s business school, where he earned an MBA.
Smerling’s funds leased office space and hired employees, but prosecutors argue this was “just window dressing.”
Rather than buying stakes in companies, as Smerling told the banks his funds had done, Smerling himself invested in the market. And he didn’t invest well. Prosecutors said he lost more than $40 million in day trading.
He was sentenced Friday to 8 years and a month in prison after admitting to submitting bogus financial audits and deals from investors such as Steve Cohen, the billionaire hedge fund owner of the New York Mets, and the endowment from the University of Miami. , to convince banks to grant credit to one of its funds.
“Elliot Smerling previously admitted to obtaining funding for his private equity fund by submitting a constellation of fraudulent documents and assurances to lenders,” said Damian Williams, US Atoornwy for the Southern District of New York. “Smerling has now been rightfully sentenced to more than eight years in federal prison for his bank and stock fraud scheme.”
He is also responsible for nearly $134 million still owed to Silicon Valley Bank and Citizens Bank and the U.S. Securities and Exchange Commission has banned Smerling from associating with investment advisers, stockbrokers securities or other financial professionals.
The Herald spoke to more than a dozen rumored Smerling investors last year who said they had never invested with him. Many had never even heard of him.
Fredrick Guess, a New Orleans painter originally from Florida named by Smerling as having invested $20 million with his funds, told the Herald last year that he had obtained documents related to an alleged investment in the one of Smerling’s funds years ago, but threw it in the trash.
“I got a FedEx envelope, I don’t know how long ago, saying I had to wire him $10 million and I said, ‘What kind of scam is this? “recalls Guess.
Steven Berrard, another alleged investor and former CEO of AutoNation and Blockbuster, told the Herald last year that he had never invested with Smerling and knew nothing about him.
“Until a few days ago, I had never heard of this gentleman,” Berrard said at the time.
As the Herald documented last year, Smerling’s deception extended beyond the forged documents. He listed employers who said he had never worked for them and employees who said they had never worked for him.
Smerling told Banks he worked as chief investment officer for a predecessor to HGGC, a Silicon Valley-based private equity firm co-founded by NFL Hall of Fame quarterback Steve Young. . But he had never worked for the company, the company said, and it had never invested in Smerling’s funds, as he had falsely represented.
Pedro Soares, listed by Smerling in documents submitted to banks as one of the investment fund’s top employees, told the Herald last year that he had never worked for Smerling and had not spoken to him since. years.
Smerling created the investment firm following the collapse of Laser Partners, a South Florida private equity firm where Smerling worked as chief investment officer.
A former Laser Partners colleague told the Herald last year that Smerling had big ambitions for his new venture, which he started around 2013 and called JES Global Capital.
“It’s going to blow Laser out of the water,” recalled the former colleague Smerling said at the time.
According to prosecutors, Smerling’s lies began early on. While he invested $2 million of his own money and lined up “modest six-figure” investments from three Miami-area partners, his pitches to potential investors and lenders included misrepresentations about committed investors, investments, financial auditor and administration of the fund.
Private equity firms generally do not require investors to disburse all the money they commit to invest up front and often obtain so-called underwriting lines of credit based on the amounts investors have promised to hire eventually.
Smerling was able to secure an initial $8 million underwriting line of credit, but is still struggling to find investment opportunities. When his associates asked him to call the fund’s alleged investors to hand over the money they had promised the bottom had more money to invest, Smerling repaid the partners and the loan rather than admitting that the other investors were made up, thus establishing the “model of [Smerling’s] fraudulent business practices that would persist through February 2021,” prosecutors wrote.
Trace the money trail
James Feltman, a court-appointed receiver, is now singling out Smerling’s assets to recover as much of the stolen money as possible to return to the defrauded banks. So far, Feltman has recovered just over $16 million, according to a letter filed on Feltman’s behalf before Smerling’s sentencing.
The Wellington mansion and the 20 acres surrounding it have sold for over $6 million, but the London apartment remains unsold. The luxury car fleet, which included a 1970 Ferrari, Porsche Corvette and Chevrolet Chevelle, among others, fetched just over $800,000. Rolex and Hermès watches fetched an additional $9,000, although ownership of a Vacheron Constantin watch is disputed.
Smerling contributed over $1.6 million to college funds for his two daughters and over $840,000 to college funds for his niece and nephew. While Smerling objected to the full handover of his daughters’ account balances, the funds intended for his niece and nephew – created without their knowledge – were clawed back. Smerling also made millions in loans to entities linked to employees and old friends, largely unpaid at the time of his arrest. So far, the majority is still pending.
But mysteries remain as to where all the money went. Companies linked to Smerling hold three bank accounts in Switzerland, which are connected to two offshore trusts Smerling has established in the Cook Islands, a series of South Pacific islands associated with New Zealand. One of the Swiss accounts is said to hold more than $3.6 million, according to Feltman, although the amount of the others is unclear.
Feltman estimates that around $25-30 million remains untraceable, but it’s harder to determine where the money went because Smerling’s company computers are gone and most of the emails from the servers of society have disappeared.
Smerling’s attorneys had asked for a sentence less than eight years and one month, which was the minimum sentence suggested by federal sentencing guidelines, citing his cooperation with prosecutors, the SEC and the court-appointed receiver. , as well as the fact that Smerling was in federal custody. detention since February 2021, during which time he contracted COVID-19.
Prosecutors, however, argued that while Smerling was “coming soon”, his cooperation had not reached the level of “substantial assistance” that would suggest he deserves a lighter sentence than the recommended sentencing range. They highlighted a letter filed on behalf of the receiver stating that Smerling’s cooperation had been somewhat limited and underscored the seriousness of the crime.
“The offense was extremely serious,” prosecutors wrote. “It was cheeky, sophisticated and long-lasting.”