Justice Department Charges Jacob Frankel Over Alleged Investment Adviser Fraud

Jacob Frankel was charged with investment adviser fraud, securities fraud and wire fraud in an indictment unsealed Sept. 29 in Manhattan federal court, according to a Justice Department release.

The indictment also charges Christopher Dinelli with securities fraud, wire fraud and conspiracy, and charges Frankel with conspiracy and making false reports to the SEC. Prosecutors allege that Frankel and Dinelli obtained over $8.7 million from approximately 35 investors in connection with Beyond Alpha Ventures. The case has been assigned to US District Judge Jesse M. Furman.

According to the indictment, the defendants falsely told some investors seeking pre-IPO investments that they were buying direct shares in a pre-IPO company. Prosecutors also allege the defendants oversubscribed one of the offerings and used the extra funds for margin calls and options trading.

The indictment alleges that investors in the fund's trading vehicle were falsely told it used a proprietary algorithm, and that the fund suffered losses from Frankel's margin options trading, including approximately $1.9 million on a single trade. Prosecutors allege the defendants created fabricated account statements to hide the losses. US Attorney Jamie McDonald said that as alleged, Frankel and Dinelli "sold investors a fiction—exclusive investments, extraordinary returns, and professional management—while losing and diverting millions of dollars behind the scenes."

Prosecutors also allege Frankel failed to disclose prior felony convictions and Financial Industry Regulatory Authority discipline on Form ADV filings.

The securities fraud and wire fraud counts each carry a maximum sentence of 20 years in prison, and the other counts against Frankel each carry a maximum of five years, the release says. The SEC has filed a parallel civil action.