On the anniversary of the arrest of Ponzi king Bernard Madoff, a fund manager whose customers became spooked by Madoff's arrest and asked to retrieve their own money pleaded guilty to fraud charges in a scheme the government says cost investors $133 million.
James Nicholson, 43, of Saddle River, N.J., pleaded guilty in U.S. District Court in Manhattan to securities fraud, investment adviser fraud and mail fraud in what prosecutors said was a Ponzi scheme of his own.
Nicholson has remained jailed since his arrest last February by authorities who said his scheme was discovered when he was unable to pay customers who tried to retrieve their investments after hearing about Madoff.
Madoff was arrested Dec. 11, 2008, after confessing that he lost tens of billions of dollars for thousands of investors by paying investors seeking redemptions with money from other investors who did not try to withdraw funds. Madoff, 71, is serving a 150-year prison sentence.
Nicholson, president of investment firm Westgate Capital Management LLC of Manhattan, told Judge Richard Sullivan that he sent fraudulent financial statements to more than 250 investors between 2004 and last February.
He said that he and his employees told investors the company managed between $600 million and $900 million when it actually managed only $60 million at its peak.
"I stand before you a man who is greatly ashamed," Nicholson said. "Words cannot express how sorry I am. I take full responsibility for my actions."
Nicholson said his fund suffered large losses after Lehman Brothers Holdings Inc. filed for bankruptcy in September 2008, marking the end of what was once the nation's fourth-largest investment bank.
The judge set sentencing for April 30, when Nicholson could face up to 45 years in prison and millions of dollars in fines.
Sullivan also set a March 26 hearing to resolve a dispute in which prosecutors claim Nicholson's losses were more than $100 million while Nicholson argues that the losses were between $7 million and $20 million.
In a statement, U.S. Attorney Preet Bharara called the plea "another important step in our ongoing effort to bring justice to victims of Ponzi schemes."
Assistant U.S. Attorney Josh Klein said evidence gathered by prosecutors includes accounts statements mailed to investors and a recording of Nicholson impersonating an auditor.
Prosecutors say Nicholson falsely told investors that the fund was audited by an independent accounting firm in Manhattan and that the fund had achieved positive returns for each month from January 2004 through August 2008.
Nicholson's plea came the same day that a federal judge in Manhattan set an April 26 trial date for Arthur Nadel, 76, a Florida hedge fund manager who went on a two-week, cross-country trip before turning himself in early this year to face securities, mail and wire fraud charges.
Authorities say Nadel, accused of bilking investors out of up to $350 million, wrote in a letter as he traveled across country that he expected to be called a "Mini Madoff" because of the accusations he faced.
Investigators say Nadel's crimes were exposed when his partners, spooked by the Madoff case, asked for an independent audit of the defendant's business.
If convicted, Nadel face up to 280 years in prison.