A former hedge fund manager from Northern Westchester pleaded guilty Thursday to defrauding 45 investors, many of them friends and neighbors, of $22 million in a Ponzi scheme.
Michael Scronic of Pound Ridge, 46, pleaded guilty to one count of securities fraud, which carries a maximum sentence of 20 years in prison. He is scheduled to be sentenced by Judge Cathy Seibel on July 9.
“Michael Scronic lied about the performance of his investment fund, telling investors that his returns were as high as 13 percent," U.S. Attorney for the Southern District of New York Geoffrey S. Berman said. "But, in fact, his fund was wholly unsuccessful, resulting in millions of dollars in losses. And what wasn’t lost in the market, Scronic used for his own personal expenses. Now he faces significant time in prison for his fraud.”
According to the allegations contained in the Indictment and other court documents, Scronic raised the more than $22 million from dozens of investors in the Scronic Macro Fund from April 2010 to the October 2017.
Scronic told investors that the fund had positive returns in all but one of the 22 quarters from January 2012 through June 2017, with the highest reported quarterly return being 13.4 percent in the fourth quarter of 2014. In reality, the fund lost money in 28 out of 29 quarters of its operation, with a total net loss of about $15.7 million before commissions. The fund’s only positive quarter was its first quarter of operation in 2010.
As a result of these trading losses, the total assets Scronic claimed the fund had in each quarter far exceeded its actual assets. For example, Scronic sent account statements to investors that together showed total fund assets of $21.7 million as of June 30, 2017. In actuality, on that date, the combined balance of Scronic's brokerage and bank accounts was just $102,376.
In addition to losing money on trades, Scronic used investor money for personal expenses. His personal expenditures averaged more than $500,000 including monthly rent of $12,275 for his primary residence in Pound Ridge, mortgage payments on a vacation home in Stratton, Vermont, fees for multiple beach and country clubs, including a $30,000 payment to the Stratton Mountain Club in July 2017, and miscellaneous items charged to credit cards in amounts averaging more than $15,000 a month.
As of the summer of 2017, Scronic was unable to pay redemptions requested by fund investors because he did not have sufficient funds on hand. He told investors seeking redemptions that he would pay redemptions only at quarter's end, that he was too busy and preoccupied with a relative’s medical condition to pay redemptions, and that he was unavailable to pay redemptions because he was on vacation. In some cases, Scronic ignored redemption requests.
Scronic, who graduated from Stanford University and obtained a master's degree from the University of Chicago, operated out of his Pound Ridge home since 2010 after working for Morgan Stanley from August 1998 to October 2005, according to the SEC.
As a senior at John Jay High School in Cross River in 1989, he was quoted in a story in The New York Times advocating for abolishing the high school's "Indians' nickname, saying it was racist.
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