An investment fund operator from Highland Park has been sentenced to federal prison for losing millions on risky trades and then lying to a client to get them to invest more money.
David Swartz, 59, of Highland Park, was sentenced last week to two years in federal prison by U.S. District Judge William M. Conley for wire fraud and assisting in the preparation of a false tax return.
Swartz pleaded guilty to the charges in April. He was also ordered to pay $181,915 in restitution to one of his victims.
The U.S. Attorney’s Office Western District of Wisconsin said that Swartz worked as an unregistered investment advisor and fund manager.
He operated North Shore Alternative Strategies Fund, L.P., according to court documents.
Swartz had a close personal relationship with one of his victims, who lived in Madison, Wisconsin.
Starting in January 2009, that victim made regular and periodic investments into Swartz’s investment fund with the understanding that he would invest the money conservatively, federal prosecutors said.
In 2018, Swartz began misrepresenting the performance of the fund to the victim.
“For example, the fund lost approximately 23% of its value in 2018, but Swartz sent Victim-1 an email on December 31, 2018, stating that the fund had its ‘best year yet’ and returned ‘NET almost 9% through November and only a 1.5% loss during December,’” prosecutors said.
In January 2019, Swartz emailed the victim and said that the fund “had an incredibly great 2018” and was “solidly profitable for the year,” despite there being heavy losses to the fund.
When the fund lost a significant amount of its value in February 2020 due to a series of risky trades, Swartz again lied to the first victim about the fund’s performance and induced them to invest an additional $150,000, prosecutors said.
The significant loss in February 2020 was more than $5 million, court documents said, adding that Swart lost the money when he engaged in buying large volumes of Tesla stock on margin.
Swartz emailed the victim on March 18, 2020, a purported copy of a Charles Schwab account statement for the fund.
He altered the statement to show that the total value of the fund on December 31, 2019, was $1,017,191 when the actual value of the fund was $58, prosecutors said.
Also in March 2020, Swartz provided a false Schedule K-1 for tax year 2019 to the same victim that showed their net short-term capital gains from his investment in the fund exceeded $500,000, prosecutors said.
Prosecutors said Swartz knew that the victim did not have capital gains from the fund in 2019 because the fund incurred significant losses.
The victim in October 2020 filed a U.S. Individual Income Tax Return Form 1040 for the 2019 tax year that substantially overreported their capital gains, which caused them to report owing an unjustified amount of federal income tax.
The charges against Swartz were a result of an investigation conducted by IRS Criminal Investigation.
