Rowayton Man Pleads Guilty To Securities Fraud, Conspiracy: Feds

NORWALK, CT — A 47-year-old Rowayton man pleaded guilty this week to to securities fraud, wire fraud, investment adviser fraud, and conspiracy charges in connection with a scheme that bilked two-dozen clients out of about $19.6 milllion, announced United States Attorney Geoffrey S. Berman.

Jason Rhodes pled guilty on Thursday before U.S. District Judge Sidney H. Stein in New York. Rhodes is the co-founder of the hedge fund Sentinel Growth Fund Management, LLC, and he was accused of lying to investors and using investor funds for his own personal use and to make repayments to earlier investors in a Ponzi-like manner, according to Berman.

"As he admitted in court today, Jason Rhodes solicited investors' money with a promise to invest it in securities," Berman said in a statement. "Instead, he used it to line his own pockets and to pay off other investors who were demanding their money. Rhodes now faces significant time in federal prison for his admitted crimes."

According to the Indictment and other Court filings:

Beginning in at least 2013 and through in or about December 2016, Rhodes, together with his co-conspirators, solicited investments in Sentinel by falsely representing to investors that their funds would be used for legitimate, specified investment purposes, namely purchasing securities. In fact, Rhodes failed to invest the investor monies as promised, but rather diverted investor funds to his own personal use and the personal use of his co-conspirators and, in a Ponzi-like manner, to make repayments to other investors who were demanding their money. Among other things, Rhodes diverted investor funds to a trucking business operated by Rhodes and his wife; to pay more than $1 million to settle an unrelated civil lawsuit filed against Rhodes and one of his co-conspirators; and on other personal expenses including a resort stay in Dubai and a luxury time-share vacation club. Through this scheme, Rhodes and his co-conspirators defrauded approximately 25 investors out of a total of approximately $19.6 million.

Among other fraudulent acts, Rhodes and a co-conspirator falsified an account statement for an investor (“Investor-1”) to conceal the fact that Rhodes and his co-conspirators had misappropriated most of the $4.2 million Investor-1 had invested in Sentinel. After Investor-1 discovered the fraudulent nature of the account statement, Rhodes, working with others, obtained funds from yet another investor (“Investor-2”) in order to make payments to Investor-1. Rhodes and his co-conspirators then, on multiple occasions, created fraudulent reports for Investor-2, falsely reflecting that Investor-2’s funds were invested with portfolio managers in Sentinel’s brokerage accounts and were earning returns. In truth and in fact, and as Rhodes well knew, Investor-2’s funds had been almost entirely misappropriated upon their receipt to repay Investor-1, and were not being managed by portfolio managers on Sentinel’s platform.

Rhodes pled guilty to the following:

• One count of conspiracy to commit securities fraud and wire fraud
• One count of securities fraud
• One count of wire fraud
• One count of investment adviser fraud

According to Berman, the conspiracy count carries a maximum sentence of five years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense.

The securities fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $5 million or twice the gross gain or loss from the offense, Berman said.

The wire fraud count carries a maximum sentence of 20 years in prison and a maximum fine of $250,000 or twice the gross gain or loss from the offense, while the investment adviser fraud count carries a maximum sentence of five years in prison and a maximum fine of $10,000.

Rhodes is scheduled to be sentenced on April 6.

Berman praised the work of the Federal Bureau of Investigation, and also thanked the Securities and Exchange Commission for its cooperation and assistance in this investigation.

This case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorneys Elisha J. Kobre and Jared Lenow are in charge of the prosecution.