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A New York-based unregistered advisor pleaded guilty to defrauding clients of millions of dollars by touting strong returns via his hedge funds while pocketing investors’ money.

Solomon Lichtenstein pleaded guilty to securities fraud in New York federal court this week and faces a maximum sentence of five years in prison. He was charged last fall by the Department of Justice and by the Securities and Exchange Commission.

According to court documents and the SEC complaint, Lichtenstein lived in Stony Point, N.Y., and purportedly ran the investment fund Taraxa Capital Fund and Lightstone Trading. After some success, Lichtenstein left his job as a medical biller to trade full-time. Between 2022 and 2024, Lichtenstein solicited friends, family and neighbors to invest in his fund, claiming that it focused primarily on trading options and futures on indices and ETFs, aiming for “small, consistent returns” that “capitalize on market volatility.” Investors became limited partners in the fund.

According to the DOJ, Lichtenstein told clients he predicted annual returns that would double their investments, with 10% to 15% returns per month, and that the fund minimized risk by closing out its position at the end of each day. Investors needed to put in $25,000 up front, with $10,000 intermittently afterward, and could only withdraw their funds on the last business day of the year.

However, according to the commission, of the $2.4 million he raised from clients, Lichtenstein transferred less than a quarter of the funds to his brokerage account used for trading securities. Of what remained, Lichtenstein used about $868,000 for his own use, and the rest to make Ponzi-like payments to existing investors to fulfill redemption requests.

Lichtenstein had no reason to believe he would deliver 100% returns annually to investors, and, according to the DOJ, his boasts about the returns he’d previously achieved with his investment strategy were “materially false.” Of the approximately $590,000 he invested, he lost about $213,000 on losing trades, and by 2024, his brokerage account had a balance below $100.

According to the indictment, Lichtenstein used some money to pay off personal expenses, including “home mortgage payments, bars, restaurants, travel and cash withdrawals.” Although some funds were eventually returned, investors still lost about $1.5 million. 

Lichtenstein also misrepresented how the fund performed with clients, going as far as to create “online dashboards” allowing clients to see how their investments performed, supposedly showing the total amount they invested, its value, the annualized return percentage and “a graph to show the value of the investment over time.” But Lichtenstein controlled the dashboards' content and used them to lie to investors.

According to the DOJ, Lichtenstein is set to be sentenced on July 8.