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Edwin Ehee told a judge Friday that his San Francisco-based Viper and Compass hedge funds started out as legitimate investments, but after suffering heavy losses he decided to quit investing his clients money and created fake account statements and audit reports to cover up his scheme.
Forty-five-year-old Ehee left federal court after pleading guilty to wire fraud, tax evasion and making a false tax return. As part of his plea agreement, he admitted to stealing more than $4 million from investors who thought he was managing a hedge fund between 2001 and 2006.
"It was an investment scheme in which he promised them that he was going to use it in the securities market and he didn't," said Arlette Lee with the Internal Revenue Service.
The government says Ehee admitted to operating a classic Ponzi scheme, using new investors' funds to pay existing distributions and using some funds to pay his mortgage, car payments and other personal expenses.
"He was telling the investors that he had a complex trading strategy that he was going to use that would get a higher rate of return with less risk," said Lee.
Ehee's attorney says that on Friday morning Ehee "accepted full responsibility for mistakes committed over three years ago. For these past three years, Ed has worked with investors and law enforcement to recover all available funds and to right his wrongs... Ed is terribly sorry for what he has done, and he will continue to work with investors to make sure the funds are repaid."
If the plea agreement is accepted by the judge, Ehee will face up to 20 years in prison at his sentencing in August.
The government says this case is a cautionary tale to anyone who hopes for high returns with low risk.
"With any type of investment you have to be careful," said Lee. "If it sounds too good to be true, it probably is."
The SEC first filed fraud charges against Ehee in 2006. His attorney says Ehee settled that case, as well as a civil suit from investors by repaying a significant amoutn of their money.
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