A New Canaan investment adviser will spend 13 years in prison for running a massive Ponzi scheme that defrauded clients and companies of up to hundreds of millions of dollars. It’s the largest white-collar prosecution in the state of Connecticut.
Francisco Illarramendi, 45, formerly of New Canaan, was one of three men charged in the scheme and he entered a guilty plea.
Through Michael Kenwood Group in Stamford, Illarramendi acted as an investment adviser to certain hedge funds.
Things began to go wrong in 2006 when one of the funds lost millions of dollars Illarramendi was investing, officials said. Rather than tell his investors about the losses, Illarramendi concealed the information and misled investors and creditors to prevent the truth about the losses from being discovered.
Between 2006 to February 2011, Illarramendi created fake documents, according to federal officials, used money new investors gave him to pay the returns he promised to earlier investors and agreed to pay kickbacks to persons connected with those transactions, federal officials said.
In 2010, the SEC sought information and documentation from Illarramendi and the MK Group, which he owned, and served a subpoena for records.
On Jan. 14, 2011, the SEC filed a civil action. Then, on March 7, 2011, he pleaded guilty to two counts of wire fraud, one count of securities fraud, one count of investment advisor fraud, and one count of conspiracy to obstruct justice, to obstruct an official proceeding and to defraud the U.S. Securities and Exchange Commission.
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“For more than five years, Francisco Illarramendi’s severely misguided attempt to conceal an initial loss of $5 million ballooned into an elaborate fraud scheme that caused investors and creditors to lose hundreds of millions of dollars,” First Assistant U.S. Attorney Michael J. Gustafson said in a statement. “Through it all, he still managed to live well, receiving more than $20 million in personal benefits. I want to thank our partners at the FBI and SEC for unravelling this complex scheme, and acknowledge the efforts of the court-appointed receiver who has recovered more than $300 million that will be distributed to the victims.”
Illarramendi has been in prison since January 25, 2013, after his bond was revoked, in part because he had failed to disclose to the court that he had received and spent a Connecticut state tax refund of more than $630,000 while he was awaiting sentencing.
While the Ponzi scheme might seem small compared to Bernie Madoff's Ponzi scheme that defrauded clients of billions, this was the largest white-collar prosecution for the local U.S. Attorney's Office.
