Affinity Fraud in Action: Ex-Marine Allegedly Targets Fellow Military in Hedge Fund Fraud

By: Brittany DeDiego, Fall 2014 Student Intern

military3Some fraudsters take advantage of their position in the military to lure other military personnel into investment schemes. This is known as affinity fraud. For example, on August 6, 2013, a court granted the SEC’s request for an emergency court order to stop a hedge fund investment scheme by Clayton Cohn, a former marine living in Chicago where he had been allegedly defrauding his fellow veterans, current military, and other investors out of millions of dollars. Cohn’s hedge fund management firm Market Action Advisors raised nearly $1.8 million from his various investors, but he allegedly invested less than half of that money and used more than $400,000 of investor funds for his own personal expenses, including a mansion, a luxury car, and large tabs at high-end nightclubs. Cohn allegedly lied to his hedge fund investors about his use of the proceeds, his success as a trader, the performance of the hedge fund, and his personal stake in the hedge fund. The SEC alleges that Cohen in fact only invested $4,000 of his own money.

According to the SEC Complaint, Cohen allegedly targeted unsophisticated investors, and specifically targeted his friends, family members, and his fellow veterans to invest in his hedge fund. The SEC alleges that Cohen maintained the scheme by using investors’ money to make it appear like he was very successful and that his hedge fund was yielding very high returns, when he allegedly lost all of the money he invested. Cohn also created a so-called charity called the Veterans Financial Education Network to teach veterans how to manage their money, and used his supposed success as an example for veteran investors.

The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains, and financial penalties from Cohen and his company Market Action Advisors. The case is currently being heard by the Honorable Shadur will be continued on December 17, 2014. For more information on this story, go here, or for more information about affinity fraud go here.