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HomeNewsArchivesFormer V.I. Resident Sentenced to 25 Years for Financial Fraud

Former V.I. Resident Sentenced to 25 Years for Financial Fraud

Former St. Thomas financier Daniel Spitzer was sentenced Thursday to 25 years in federal prison for cheating 455 investors of $105 million.

Spitzer’s sentencing took place in federal court in Chicago and was announced by the U.S. Attorney for the Northern District of Illinois Zachary T. Fardon.

Spitzer moved from the territory in 2011, after the scheme was uncovered. He pleaded guilty to 10 counts of mail fraud in July, on the day his trial was scheduled to begin in federal court.

Prosecutors said Spitzer misused the money he raised from investors for his own benefit, and to make Ponzi-type payments to investors, resulting in a loss of $33.98 million to at least 279 victims, many of them elderly.

One of the central companies in the case was Kenzie Financial Management, a V.I. corporation with offices on St. Thomas. Spitzer was the sole shareholder and principal of Kenzie Financial, according to the Security and Exchange Commission. The corporation purportedly acted as the trading manager for 11 of the 12 bogus investment funds that Spitzer also controlled.

Kenzie Financial also was a beneficiary of V.I. Economic Development Commission tax breaks. The EDC was in the midst of a compliance review of Kenzie Financial when the SEC case broke "and was in the process of terminating EDC benefits for the company," the Source reported in 2011.

Spitzer, 55, was living in North Barrington, a suburb of Chicago, at the time of his sentencing.

U.S. District Judge James Zagel said Spitzer had caused “very substantial damage,” in imposing the sentence Thursday, the day after he ordered Spitzer into federal custody. The judge also ordered restitution of $33.98 million.

Spitzer engaged in an “extended act of greed” between late 2004 and early 2010, Assistant U.S. Attorney Madeleine Murphy argued at Thursday’s hearing.

According to court records, Spitzer was the principal officer and sole shareholder of Kenzie Financial Management, the sole manager and member of Kenzie Services LLC, the president of Draseena Funds Group, Corp., the manager of DN Management Company LLC, and the manager of Nerium Management Company.

Co-defendant Alfred Gerebizza, 59, formerly of Crystal Lake and Palm Beach Gardens, Fla., was the secretary and a director of Draseena, and a sales agent for the Kenzie Funds, who also held himself out as a trader. Gerebizza was convicted at trial last July of 10 counts of mail fraud and six counts of federal income tax fraud. He is in federal custody awaiting sentencing.

Through these entities, Spitzer controlled 12 investment funds collectively known as the “Kenzie Funds.” Spitzer and Gerebizza offered and sold to the public investments in the various Kenzie Funds in the form of membership interests and limited partnerships. Through sales agents and various marketing materials, they informed investors and potential investors that their investments would be used primarily in foreign currency trading, that the Kenzie Funds had never lost money, and that they had achieved profitable returns. The defendants had to continually raise funds through the solicitation of new investors in the Kenzie Funds to make payments on investments made by earlier investors, all of which they concealed and intentionally failed to disclose to both new and earlier investors, the prosecutor said.

Although Spitzer and Gerebizza falsely represented to prospective investors and current investors that different Kenzie Funds had different levels of risk and different investment strategies, they commingled the money invested in all 12 Kenzie Funds, then misappropriated a significant portion, and invested less than one third of the approximately $105 million raised from investors.

The defendants told investors that the Kenzie Funds had rates of returns ranging from 4.52 percent to 13.54 percent over the prior five years, although the bank accounts for the Kenzie Funds reflected that the total net return during that period was less than 1 percent. As of June 30, 2009, they represented that the Kenzie Funds were worth approximately $250 million when, in fact, the funds collectively had only approximately $4 million in their bank accounts.

The government was represented by Murphy and fellow Assistant U.S. Attorneys Jason Yonan and Jessica Romero.

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