SEC Charges Hedge Fund Founder with Running $2.7 Million Ponzi Scheme

Authorities claim investor funds were misappropriated and used to sustain the fraudulent operation.

A U.S. fund manager is facing serious allegations from U.S. authorities who claim a day-trading venture he launched was, in fact, a sophisticated Ponzi scheme.

The U.S. Securities and Exchange Commission (SEC) has filed charges against Solomon Lichtenstein, the founder of the hedge fund Taraxa Capital Fund LP and Lightstone Trading Inc. The regulator alleges that Lichtenstein defrauded investors in a scheme that successfully raised approximately US$2.7 million, funds purportedly intended for securities trading.

Raising Capital from Family and Friends

According to the SEC’s formal complaint, the scheme began in late 2022. Lichtenstein secured US$2.4 million from investors for the Taraxa fund, many of whom were reportedly family members and close friends. Additionally, he sold US$300,000 worth of promissory notes issued by Lightstone. These notes promised investors a hefty 5% monthly return, which was supposedly generated through trading profits.

Misappropriation and Losses

U.S. authorities, however, paint a different picture of how the funds were used. They allege that Lichtenstein misappropriated nearly US$1 million to cover personal expenses. Furthermore, the authorities claim he paid out US$1.1 million to existing investors using new investor money—a classic characteristic of a Ponzi operation. Ultimately, these actions resulted in total losses of US$1.5 million for investors.

Legal Action

The SEC has charged Lichtenstein with violating various securities rules. Simultaneously, the U.S. Attorney for the Southern District of New York (SDNY) has brought a parallel criminal case against him, including charges of securities fraud and wire fraud.

It is noted that these allegations have not yet been proven in court.