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Scott Kupersmith, now living in Marco Island, Fla., pleaded guilty to the charges last May. In addition to the prison term, U.S. District Judge Katharine S. Hayden sentenced Kupersmith to three years of supervised release and fined him $1.8 million.
Kupersmith, 46, formerly worked with Strategic Alliance Partners, LLC, created in 1993 by former major league baseball player and three-time All Star Graham “Chip” Conklin, a Ridgewood High School graduate who has become a successful entrepreneur.
Kupersmith remained on when the company folded into Studley, an international commercial real estate firm, which established a North Jersey office that is now located in Continental Playa III just off Route 4 in Hackensack after moving six years ago from a smaller space in Rochelle Park.
This time, the government said, Kupersmith and an accomplice bought and sold the same stock in different accounts – frequently on the same day with the intention of profiting on swings up or down in the stock price.
They promised extraordinary returns, federal authorities said: One victim was guaranteed 43% every three months.
“To perpetuate the scheme, [they] opened more than half a dozen brokerage accounts at multiple brokerage firms located in New Jersey and elsewhere,” U.S. Attorney Paul J. Fishman said. “In order to induce the brokerage firms to open these accounts, Kupersmith falsely represented that he had a personal net worth of approximately $5 million and that he controlled a hedge fund in Manhattan with assets of as much as $20 million.
“Kupersmith also misappropriated the personal identification information of a family member and a friend and used that information to open additional brokerage accounts. Once these accounts were opened, Kupersmith used them to make large-dollar-value securities trades.”
With these accounts opened, the two men were able to move money around to cover some of the trades, the criminal complaint filed in U.S. District Court in Newark says.
For instance, Kupersmith bought 5,000 shares of Baidu, Inc. stocks at one brokerage firm and, on the same day sold the same number of shares through another account to cover the cost, the complaint says. At no point were the partners using their own money.
When the trades were profitable, they deposited the profits into offshore accounts, or spent the money on private limousine services, luxury hotel rooms and adult entertainment clubs – or to make Ponzi-like principal and interest payments to existing investors, the SEC said.
When deals tanked, the partners left broker-dealers to settle the trades at a significant loss.
In November, 2009, Kupersmith placed orders for $15 million worth of Baidu on behalf of two brokerage firms. But he “failed to deliver any of the shares of Baidu that he had agreed to sell,” the complaint says.
As a result, the two firm were forced to buy 48,700 share of Baidu on the open market — at $600,000 more than they originally paid, the government says.
Manhattan District Attorney District Attorney Cyrus R. Vance Jr. said the scheme was “little more than a confidence game using offshore banks, shell companies, and fraud….”
Eventually the victims got wise and contacted federal authorities.
Fishman credited special agents of the FBI for the investigation and thanked the U.S. Securities and Exchange Commission’s Division of Enforcement in New York for its assistance.
Assistant U.S. Attorney Christopher J. Kelly of the U.S. Attorney’s Office Economic Crimes Unit in Newark handled the plea and sentencing.
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