Spike Lee Would Be Proud: Government Does the Right Thing (In a Securities Fraud Case)

Da Mayor: Doctor.

Mookie: C’mon, what? What?

Da Mayor: Always do the right thing.

Mookie: That’s it?

Da Mayor: That’s it.

Mookie: I got it. I’m gone.

Do the Right Thing (1989) (yes, 1989—you are that old)

Except for “not guilty,” the sweetest words for a criminal defense attorney may be “time served.” A hedge fund owner who was indicted for securities fraud was sentenced to time served when the government agreed to drop the most serious charges against him.

Chetan Kapur was the founder of ThinkStrategy Capital Management LLC, an asset management firm. In July 2012, the government indicted Mr. Kapur for one count of securities fraud, one count of investment advisor fraud and five counts of wire fraud. These charges could have led to 125 years in prison. He was arrested on July 16, 2012, and detained. His bail was denied.

According to the government’s press release at the time:

KAPUR was the sole managing principal of ThinkStrategy Capital Management, LLC, a Delaware limited liability company with its principal place of business located in New York, New York.  KAPUR managed and advised two hedge funds that each utilized two share classes: ThinkStrategy Capital Fund-A and ThinkStrategy Capital Fund-B (collectively, the “ThinkStrategy Capital Fund”), and TS Multi-Strategy Fund-A and TS Multi-Strategy Fund-B (collectively, the “ThinkStrategy Multi-Strategy Fund”).

In connection with the marketing and management of the ThinkStrategy Capital Fund and the ThinkStrategy Multi-Strategy Fund, KAPUR and ThinkStrategy deceived investors by making false and misleading statements and material omissions, and also by disseminating false and misleading information to the investors.  The information included misrepresentations about the prior and current performance, longevity, assets, personnel, and due diligence of ThinkStrategy’s managed funds.

Superseding Indictment

In July 2013, however, the government filed a one-count superseding indictment that included only a charge for failing to maintain proper books and records under 15 U.S.C. § 80b-4 and 80b-17. According to Mr. Kapur’s lawyer, the government realized it did not have sufficient evidence to support the dismissed fraud charges since investors told the FBI agents that they knew the alleged misstatements were in “pro forma returns.” Pro formas are meant to show how a hypothetical investment strategy could perform, not how it has performed or how it necessarily will perform in the future.

Sentencing Recommendations

The government’s sentencing memorandum requested that Kapur be sentenced to time served for the one-count indictment.

Mr. Kapur’s response to the government’s sentencing memorandum noted that

The resolution of this case with a plea to a regulatory offense related to record keeping does not in any way support the suggestion that any investors were ever misled. In fact there is not one investor who suggested in any 302’s produced by the Government that they would not have invested with Mr. Kapur but for the regulatory violation to which Mr. Kapur has pled, e.g. failure to maintain books and records in an accessible place for a period of five years.

Mr. Kapur asked for a sentence of zero to six months, rather than time served, since he had already served over a year in prison.

Outcome

Ultimately, the New York court agreed with the government that Mr. Kapur should be sentenced to time served, and he was released immediately.

Mr. Kapur’s lawyer had to deal with several parallel proceedings. Mr. Kapur was sued by investors in ThinkStrategy. In November 2012, he was ordered in that case to pay nearly $5 million. He was also sued by the SEC. He entered into a consent decree with the SEC, for an amount to be determined later.

It’s hard to praise the government too much since it detained Mr. Kapur for over a year in prison while the apparently spurious case progressed through the courts. The docket is not clear why he was detained; this clearly is not a violent crime so mostly likely the court believed that Mr. Kapur was a flight risk. Nonetheless, it’s always nice to see DOJ drop charges when it realizes it has no case (because there are AUSAs out there who simply would never do this). It’s also refreshing to report on a win rather than another indictment, another conviction, another sentencing.

Let’s hope I can report on more wins in the future—some sentences of “time served” and maybe even a “not guilty” or two. Heck, let’s hope DOJ keeps doing the right thing, too. I got it. I’m gone.

This entry was posted in Dismissal of charges in indictment, Investor fraud, Securities fraud, Sentencing, Wire Fraud. Bookmark the permalink.

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