IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF NEW JERSEY 

SECURITIES AND EXCHANGE 

COMMISSION, 

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Plaintiff, 

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Civil Action No. 23-cv-21816 

 

v. : 

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Complaint for Violations of the 

Federal Securities Laws 

JOHN HUGHES, 

Defendant. 

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:

: 

Jury Trial Demanded 

 : 

 Plaintiff Securities and Exchange Commission (the “Commission”), One Penn Center, 1617 

JFK Boulevard, Suite 520, Philadelphia, Pennsylvania 19103, alleges as follows against defendant 

John Hughes (“Hughes”), whose last known address is 2 Matthew Place, Mahwah, NJ 07430. 

SUMMARY 

1. This case involves a multi-year investment adviser fraud orchestrated by Hughes, 

Individual 1, Prophecy Asset Management LP (“PAM”), and Individual 2. 

2. Hughes and Individual 1 owned, operated, and controlled PAM, a registered 

investment adviser that managed multiple investment funds. Hughes and Individual 1 reviewed 

and approved all of PAM’s written communications with investors and prospective investors and 

had ultimate authority over the representations made by PAM. 

3. During the period 2014 through March 2020, Hughes deceived the investment 

funds’ investors, prospective investors, auditors and administrator about nearly every aspect of 

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the investment funds, including their structure and operation, risk-management practices, 

investments, and performance. 

4. Hughes, Individual 1, and PAM told investors and prospective investors, both 

orally and in writing, that the investment funds were diversified, liquid, actively risk managed, 

generated positive returns every month since their inception, and that the primary investment 

fund was secured by cash collateral. 

5. In reality, however, Hughes, Individual 1, and PAM did not achieve those results 

and did not provide investors with stable, diversified, risk-managed, well-performing funds. 

Instead, they concentrated a huge percentage of the investment funds’ assets with a single subadviser, Individual 2, who sustained massive losses unbeknownst to investors. 

6. To conceal these losses from their investors, prospective investors, auditor, and 

administrator, Hughes, PAM, and Individuals 1 and 2 fabricated documents, effectively 

eliminated an important part of PAM’s strategy for reducing risk—the requirement that 

Individual 2 provide cash collateral to support Individual 2’s trading—and engaged in sham, 

round-trip transactions designed to give the false appearance that investments had performed 

profitably. 

7. These actions painted an inaccurate picture of the funds’ financial health by 

hiding losses and other impaired assets, which, in turn, inflated the value of the funds and 

generated excessive management and incentive fees to Hughes, Individual 1, and PAM. 

8. Between 2014 through March 2020, Hughes, Individual 1, and PAM raised more 

than $500 million for the investment funds. 

9. During the period 2014 through March 2020, Hughes, PAM, and Individual 1 

collected in excess of $15 million in management and incentive fees. 

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10. By March 2020, however, fund losses exceeded $350 million; the investment 

funds’ auditor withdrew its 2018 audit opinion and resigned; and Hughes, Individual 1, and PAM 

gated the investment funds, indefinitely suspending redemptions by investors. 

11. By engaging in the conduct described in this Complaint, Hughes violated, directly 

or indirectly, and unless enjoined will continue to violate, Section 17(a) of the Securities Act of 

1933 (“Securities Act”) [15 U.S.C. § 77q(a)]; Section 10(b) of the Securities Exchange Act of 

1934 (“Exchange Act” [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]; 

and Sections 206(1), (2), and (4) of the Investment Advisers Act of 1940 (“Advisers Act”) [15 

U.S.C. §§ 80b-6(1), (2), and (4)] and Rule 206(4)-8 thereunder [17 C.F.R. § 275.206(4)-8]. 

JURISDICTION AND VENUE 

12. The Commission brings this action pursuant to Sections 20(b) and 20(d) of the 

Securities Act [15 U.S.C. §§ 77t(b), (d)], Sections 21(d) and 21(e) of the Exchange Act [15 

U.S.C. §§ 78u(d), (e)], and Sections 209(d) and 209(e) of the Advisers Act [15 U.S.C. §§ 80b9(d), (e)] to enjoin such acts, practices, and courses of business, and to obtain disgorgement, 

prejudgment interest, civil money penalties, an officer and director bar and such other and further 

relief the Court may deem just and appropriate. 

13. This Court has jurisdiction over this action pursuant to Sections 20(b), 20(d), and 

22(a) of the Securities Act [15 U.S.C. §§ 77t(b), (d), and 77v(a)]; Sections 21(d), 21(e), and 27 

of the Exchange Act [15 U.S.C. §§ 78u(d), (e), and 78aa]; and Sections 209(d), 209(e), and 214 

of the Advisers Act [15 U.S.C. §§ 80b-9(d), (e), 80b-14]. Hughes, directly or indirectly, made 

use of the mails, or the means and instrumentalities of interstate commerce, or the facility of 

national security exchanges, in connection with the transactions, acts, practices, and courses of 

business alleged in this Complaint. 

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14. Venue in this district is proper pursuant to Section 22(a) of the Securities Act [15 

U.S.C. § 77v(a)], Section 27 of the Exchange Act [15 U.S.C. § 78aa], Section 214 of the 

Advisers Act [15 U.S.C. § 80b-14], and 28 U.S.C. § 1391(b), because certain acts, practices, 

transactions, and courses of business constituting violations of the federal securities laws 

occurred within the District of New Jersey. In connection with the fraud, Hughes worked from 

his home office located in New Jersey and sent and/or caused to be sent, wire transmissions that 

went through servers located in New Jersey. 

THE DEFENDANT 

15. John Hughes, age 55, resides in Mahwah, New Jersey. During the relevant 

period, Hughes was a 50% co-owner of PAM and had authority over all uses of investor funds 

invested in the investment funds defined below. 

RELEVANT INDIVIDUALS AND ENTITIES 

16. Individual 1 resides in New Jersey. During the relevant period, he was a 50% coowner of PAM and had authority over all uses of investor funds invested in the investment funds 

defined below. 

17. Individual 2 resides in Florida. During the relevant period, he controlled several 

entities that traded the investment funds’ capital or to which the investment funds loaned capital. 

18. PAM is a Delaware limited partnership and registered investment adviser 

established in 2001. PAM provided investment advisory services to the investment funds 

defined below. 

19. “Prophecy,” as used herein, refers collectively to Prophecy Trading Advisors 

Master Fund LP, Prophecy Trading Advisors LP, and Prophecy Trading Advisors International 

LTD. 

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20. Prophecy Trading Advisors Master Fund LP (“Master Fund”) is a Cayman Island 

limited partnership established in 2018 and operated as a purported hedge fund. 

21. Prophecy Trading Advisors LP (“PTA”) is a Delaware limited partnership 

established in 2011 and operated as a purported hedge fund. 

22. Prophecy Trading Advisors International LTD (“PTA International”) is a British 

Virgin Islands limited company established in 2012 and operated as a purported hedge fund. 

23. “Special Opportunities,” as used herein, refers to Prophecy Special Opportunities 

Fund LP and Prophecy Special Opportunities Fund International LTD. 

24. Prophecy Special Opportunities Fund LP is a Delaware limited partnership 

established in 2018 and operated as a purported hedge fund. 

25. Prophecy Special Opportunities Fund International LTD is a British Virgin 

Islands limited company established in 2018 and operated as a purported hedge fund. 

 FACTS

A. Background 

26. In 2001, Individual 1 founded PAM, which became an SEC-registered investment 

adviser on May 9, 2012. Individual 1 was PAM’s Chief Executive Officer and Chief Investment 

Officer. His primary duties included raising capital for Prophecy, communicating with investors 

and prospective investors and identifying and selecting sub-advisers.

27. Hughes joined PAM in 2006 and served as PAM’s President and Chief 

Compliance Officer, oversaw the back-office and risk management operations for PAM, and 

selected sub-advisers. 

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28. PAM was the investment adviser to Prophecy, which originally consisted of PTA 

and eventually included PTA International and the Master Fund. In July 2018, Prophecy 

transitioned to a master-feeder structure, converting both PTA and PTA International into feeder 

funds that invested all the capital in the newly created Master Fund, where all investment activity 

took place. 

29. From its inception, Prophecy’s “first-loss” business model purportedly involved a 

risk managed trading platform wherein PAM would allocate Prophecy’s capital to dozens of subadvisers, who then traded the capital in prime brokerage accounts held by Prophecy. Subadvisers enjoyed back-office support from PAM and the benefits of leveraged trading capital 

provided by Prophecy’s prime brokers, and were entitled to a percentage of any trading profits 

generated by their trading. In return, sub-advisers paid a monthly administrative fee. 

30. Under the Prophecy model, while sub-advisers were permitted a percentage of 

profits, they also were also responsible for covering losses up to an agreed amount. Typically, 

PAM required sub-advisers to post 10% of the agreed upon trading allocation as cash collateral 

to be available to cover possible losses. 

31. PAM purportedly actively monitored the sub-advisers’ performance. If a subadviser’s losses exceeded their posted cash-collateral, PAM was supposed to cut off the subadviser’s trading until the sub-adviser provided additional cash collateral. 

32. Hughes, Individual 1, and PAM collectively represented to investors and 

prospective investors in written materials and orally that Prophecy followed its first-loss business 

model. 

33. PAM entered into an Account Investment Advisory Agreement (“Advisory 

Agreement”) with each sub-adviser to memorialize certain terms, including the amount of capital 

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to be allocated to the sub-adviser for trading, administrative fees, profit split percentages and the 

amount of cash collateral to be posted by the sub-adviser. 

34. In exchange for the payment of administrative fees and agreeing to absorb trading 

losses up to the amount of their required cash collateral, the sub-advisers were permitted to keep 

a larger percentage of their trading profits compared to industry standards, typically 80% or 

more. 

35. The Advisory Agreement, an example of which was frequently provided to 

investors for due diligence purposes, indicated that all collateral posted by the sub-adviser was to 

be segregated in a separate bank account controlled by Prophecy’s administrator and used to 

offset any trading losses incurred by that sub-adviser. 

36. To induce investments in the funds, Hughes, Individual 1, and PAM, through 

marketing documents for Prophecy, represented that the combination of a lower profit split to 

Prophecy, the monthly administrative fees collected from all sub-advisers, and the insurance 

against trading losses afforded by each sub-advisers’ cash deposit created a steady stream of mid 

to high single-digit annual returns uncorrelated to market conditions or the performance of the 

sub-advisers. 

B. Hughes Misrepresented Prophecy’s Business Model to Investors and Prospective 

Investors

37. The premise of steady, single-digit returns protected against loss was based on 

misrepresentations of active risk management where sub-advisers were purportedly routinely 

monitored with respect to diversification, cash collateral, and liquidity of trading strategies. 

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1. Misrepresentations Regarding Sub-adviser Diversification 

38. In written materials and/or orally, Hughes, Individual 1, and PAM touted subadviser diversification as a key aspect of Prophecy’s purported first-loss trading strategy because 

it minimized concentration risk. In other words, the risk to the investment funds as a whole 

would be reduced by avoiding over-exposure to a single sub-adviser. If any one sub-adviser 

incurred losses exceeding the balance of their cash deposit, the funds being managed by other 

sub-advisers would not be impacted. 

39. Hughes and Individual 1, through PAM, represented that Prophecy’s capital was 

allocated to dozens of sub-advisers employing multiple diverse and even “unique” trading 

strategies. For example, PAM distributed monthly “fact sheets” to investors stating that 

Prophecy “seeks to generate returns by making notional allocations to a diverse group of subadvisers running a variety of discretionary, systematic and unique investment strategies.” 

40. Similarly, Hughes and Individual 1 caused PAM to provide investors and 

prospective investors a Due Diligence Questionnaire, which stated that Prophecy has “a 

diversified sub-adviser platform.” 

41. In meetings and phone conversations, Individual 1 told prospective investors that 

diversification of sub-advisers helped minimize concentration risk. 

42. However, Hughes and Individual 1 knew or were reckless in not knowing—and 

concealed from investors—that from at least 2017 through March 2020, the majority of 

Prophecy’s assets were allocated to Individual 2 for purposes of trading. 

43. Hughes and Individual 1 received monthly Portfolio Breakdown Reports, which 

were internal reports that identified each sub-adviser by name, including Individual 2, and listed 

their allocation amounts. 

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44. In December 2018, PAM began circulating these monthly Portfolio Breakdown 

Reports to investors and prospective investors but anonymized each sub-adviser as “Manager 1”, 

“Manager 2”, etc. 

45. The Portfolio Breakdown Reports concealed Prophecy’s massive concentration in 

Individual 2 by presenting his total allocation as if Individual 2 were multiple, individualized 

sub-advisers. 

46. For example, the December 2018 report listed 33 sub-advisers and identified them 

merely as Manager 1 through Manager 33. Unbeknownst to investors, six of the 33 sub-advisers 

were controlled by Individual 2, who had been allocated approximately 78% of Prophecy’s more 

than $1 billion in leveraged capital available for trading. 

2. Misrepresentations Regarding Individual 2’s Cash Collateral

47. Hughes and Individual 1, through PAM, distributed offering and marketing 

documents that also stated that Prophecy protected its capital from losses by holding cash 

collateral contributed by each sub-adviser. PAM represented that if a sub-adviser’s losses 

absorbed 50% or more of its cash collateral deposit, PAM would stop the sub-adviser’s trading 

and require additional collateral or a reduction in exposure. 

48. For example, the Due Diligence Questionnaire specifically stated that allocations 

to sub-advisers “are supported by cash deposits provided by each sub-adviser. The deposits 

serve as the primary downside risk protection for the fund.” The Due Diligence Questionnaire 

further boasted that Prophecy’s “‘edge’ is that each sub-adviser is accountable for losses from 

their strategy and must supply capital to a third-party deposit account or similar collateral 

structure. This deposit is used to offset any losses.” 

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49. Further, Prophecy’s 2017 audited financial statements, which were provided to at 

least some investors, stated that Prophecy maintains contractual agreements that required each 

sub-adviser “to deposit their own capital into a separate bank account managed by the Fund 

administrator. . . . Sub-advisers agree to absorb their trading losses by reimbursing the Fund 

from the deposited capital.” In addition, on calls and/or in-person meetings with investors and 

prospective investors, Individual 1 represented that Prophecy required cash deposits equal to 

10% of a sub-adviser’s trading allocation to absorb any trading losses incurred. 

50. Since at least 2018, Prophecy’s cash collateral deposits fell well short of the stated 

10% of sub-adviser allocations. 

51. For example, as of January 2019, Prophecy’s total cash deposit balance equaled a 

mere 0.77% of the reported gross market value of its assets. By July 2019, Prophecy’s cash 

deposit balance dipped even lower, to 0.05%. 

52. Prophecy had all but abandoned its cash deposit requirement for Individual 2, 

notwithstanding Individual 2’s outsized allotment of Prophecy’s trading capital and enormous 

trading losses. 

53. For instance, Individual 2’s trading losses exceeded the amount of the cash 

collateral Individual 2 had contributed by: $55 million in 2018; $216 million in 2019; and $328 

million in 2020. 

54. At all times, Hughes and Individual 1 were aware of Individual 2’s trading losses 

and related cash deposit deficits because they were provided monthly reports indicating each 

sub-advisers’ profit and loss and cash deposit balances. Hughes and Individual 1 also discussed 

Investor 2’s trading losses in person and by phone. Nevertheless, Hughes and Individual 1 

allowed Individual 2 to continue trading. 

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55. Despite knowing of Individual 2’s continually increasing cash collateral deficit 

and mounting trading losses, Hughes, Individual 1, and PAM continued to falsely claim to 

investors that no sub-adviser had ever exhausted its cash collateral deposit and Prophecy had 

experienced positive returns since its inception.

56. Contrary to the representations of Hughes, Individual 1, and PAM, Prophecy first 

had a sub-adviser exhaust their cash collateral in January 2014, when a sub-adviser lost nearly $3 

million of investor capital, an amount well in excess of his cash collateral. At that time, Hughes 

and Individual 1 caused Prophecy to enter into a series of sham transactions to conceal the loss. 

57. Despite that event and the continued losses of Individual 2, Hughes, Individual 1, 

and PAM continued to knowingly and/or recklessly mislead investors about Prophecy’s 

performance. In an email dated Oct. 28, 2018, several weeks after Individual 2 exhausted his 

cash collateral deposit and his trading losses reached $55 million, Individual 1 wrote to 

investors: “No portfolio managers had a severe enough decline in the allocations to exhaust their 

deposit and impair the fund.” This was false. 

58. On May 2, 2019, PAM sent Prophecy’s largest investor a document containing 

information on each sub-adviser’s trading results and deposit balance which reflected that 

Individual 2 maintained a deposit balance of $36 million. This was false. 

59. Contrary to that representation, the bank account designated to hold cash 

collateral posted by all of Prophecy’s sub-advisers contained less than $10 million and internal 

records maintained by Prophecy indicated that Individual 2 had a cash collateral deficit on May 

2, 2019 of more than $130 million. 

60. From January 2018 through March 2020, Individual 2’s trading losses exceeded 

the balance of his cash collateral for all but one month. 

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61. By February 2020, Individual 2’s deposit balance deficit approached $200 

million. Although Individual 1 knew or was reckless in not knowing that Individual 2’s deposit 

balance had a massive deficit, Individual 1 emailed a prospective investor, claiming “the fund is 

a pure first-loss strategy, with all allocations backstopped by collateral deposits.” 

3. Misrepresentations Regarding Liquidity of Investments 

62. Pam’s offering documents were also replete with misrepresentations that 

Prophecy’s investments were concentrated in liquid securities traded on Prophecy’s platform. 

63. For example, the Due Diligence Questionnaire falsely stated that “[t]he majority 

of positions across the fund can be liquidated within one business day without significantly 

impacting prices.” 

64. Hughes knew, or was reckless in not knowing, that during due diligence meetings 

with potential investors, Individual 1 represented that Prophecy’s sub-advisers traded in mainly 

highly liquid US equities on Prophecy’s trading platform, allowing PAM to monitor a subadviser’s trading activity and quickly liquidate positions if the losses breached the sub-adviser’s 

cash deposit. 

65. Individual 1 represented to at least one investor that although Prophecy would 

occasionally extend loans, or make direct investments in sub-advisers, which PAM referred to as 

“off-platform” investments, these strategies were for arbitrage-like trading with low downside 

and comprised less than 5% of Prophecy’s assets. Individual 1 represented further that PAM 

maintained full transparency regarding the off-platform investments. This was false. 

66. However, contrary to these representations, from 2018 through March 2020, 

Hughes and Individual 1 routinely caused Prophecy to invest substantial sums of money in offplatform, illiquid investments. 

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67. By the end of 2019, Hughes knew, or was reckless in not knowing, that offplatform investments represented approximately 75% of Prophecy’s reported net asset value. 

Furthermore, Hughes knew, or was reckless in not knowing, that these investments were 

frequently not in low-risk, arbitrage-like trading strategies in which PAM had full transparency, 

but were instead comprised mainly of unsecured loans or investments in special purpose vehicles 

for which Hughes and Individual 1 performed little or no due diligence. 

C. Hughes Concealed Investor 2’s Trading Losses 

68. Hughes, Individual 1, and PAM failed to disclose to investors the massive trading 

losses incurred by Individual 2 and caused PAM to make false representations to investors about 

the investment funds’ performance. 

69. From at least October 2017 through March 2020, Hughes and Individual 1 caused 

PAM to solicit significant sums of new investor capital while representing to investors and 

potential investors that it had generated positive monthly returns since its inception. For 

example, in March 2020, a PTA fact sheet circulated to investors showed positive performance 

in every month between October 2011 and January 2020. These representations were false. 

70. The following chart shows Prophecy’s monthly assets under management 

alongside the concealed cumulative trading losses generated by Individual 2. (The undisclosed 

cumulative trading losses include both unrealized marked-to-market losses and realized cash 

losses.) By March 2020, Individual 2’s use of leverage resulted in cumulative losses that 

exceeded reported assets under management: 

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Month Reported 

Assets Under 

Management 

(Prophecy 

only) 

Undisclosed 

Individual 2 

Cumulative 

Trading Losses 

Jan ‘18 $193,262,221 ($68,796,437) 

Feb ‘18 $206,680,330 ($89,272,107) 

Mar ‘18 $210,514,769 ($73,855,675)

Apr ‘18 $231,581,824 ($84,973,086) 

May ‘18 $231,296,977 ($99,856,774) 

Jun ‘18 $238,882,887 ($55,769,941)

Jul ‘18 $251,960,512 ($86,149,501) 

Aug ‘18 $278,391,448 ($99,029,274) 

Sep ‘18 $281,328,749 ($133,547,197) 

Oct ‘18 $291,278,303 ($92,770,160)

Nov ‘18 $300,145,549 ($126,465,092)

Dec ‘18 $309,940,471 ($85,457,632)

Jan ‘19 $316,671,028 ($110,945,903) 

Feb ‘19 $352,256,146 ($141,049,323) 

Mar ‘19 $363,039,646 ($164,932,011) 

Apr ‘19 $351,669,307 ($193,341,589) 

May ‘19 $334,611,151 ($270,389,293) 

Jun ‘19 $338,605,040 ($274,697,896) 

Jul ‘19 $346,130,025 ($277,349,650) 

Aug ‘19 $371,751,174 ($272,194,183)

Sep ‘19 $395,227,258 ($260,971,957)

Oct ‘19 $361,330,212 ($278,964,629)

Nov ‘19 $367,180,474 ($288,855,554)

Dec ‘19 $363,079,864 ($264,739,409)

Jan ‘20 $363,042,750 ($270,944,717)

Feb ‘20 $380,877,805 ($294,952,814)

Mar ‘20 $386,127,805 ($401,210,782)

D. Hughes Concealed Investor 2’s Lack of Cash Collateral

71. Hughes, Individuals 1 and 2, and PAM deceived Prophecy’s administrator and 

auditor by entering into sham transactions to provide Individual 2 with cash to cover his trading 

losses and falsifying documentation designed to create the appearance that Individual 2’s trading 

losses remained secured by non-cash collateral 

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1. Hughes Used Investor Funds for Individual 2’s Cash Collateral

72. For example, by October 2017, Individual 2 had a negative cash collateral deposit 

of approximately $19 million. Individual 2 did not contribute additional cash to cure the deficit. 

Rather than restrict his trading until he contributed additional cash collateral, Hughes caused 

Prophecy to engage in a “round-trip” transaction with Individual 2 designed to artificially 

replenish Individual 2’s cash collateral deposit. The below diagram illustrates this round-trip 

transaction: 

73. Specifically, Prophecy entered into an agreement with Individual 2 whereby 

Prophecy “loaned” $11 million of investor funds to AGS Enterprises LLC (“AGS Enterprises”), 

an entity with no assets or operations that was owned by Individual 2. Through a series of 

transactions, AGS Enterprises returned $10 million of that amount to Prophecy masked as 

collateral contributions by Individual 2. 

74. First, on November 22, 2017, Prophecy wired $5 million to AGS Enterprises. 

That same day, AGS Enterprises wired $5 million to Samjor Family, Individual 2’s sub-adviser 

entity. Then, Samjor Family immediately wired that money back to Prophecy, which recorded 

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the $5 million as a cash collateral contribution from Individual 2, notwithstanding that Prophecy 

had originally advanced this money to a related entity. 

75. Eight days later, on November 30, the parties repeated the same process, taking 

another $5 million from Prophecy, routing it through entities owned by Individual 2, and sending 

the same amount of money back to Prophecy to further “replenish” Individual 2’s cash deposit 

account. 

76. In an email, Hughes falsely told Prophecy’s administrator that the $11 million 

Prophecy sent to AGS Enterprises in November 2017 was “to fund a new investment.” 

77. Hughes and Individual 1 decided to conceal Individual 2’s involvement in the 

transaction from Prophecy’s auditor and administrator. Hughes relayed this decision to 

Individual 2, who then forged the signature of a former colleague as the signer of the agreement 

between Prophecy and AGS Enterprises on behalf of AGS Enterprises (thus masking the 

involvement of Individual 2). However, Individual 2’s former colleague had no knowledge of 

this transaction and was no longer associated with AGS Enterprises at the time of the agreement. 

2. Hughes Allowed Individual 2 To Provide Worthless Non-Cash 

Collateral 

78. To avoid reporting losses to Prophecy’s auditor, administrator, and investors, 

Hughes, Individual 1, and PAM caused Prophecy to record Individual 2’s trading losses on its 

books as a receivable from Individual 2. While the amount of the receivable changed depending 

on the investments and market conditions, as of year-end 2018, the purported receivable 

accounted for approximately 0.8% of Prophecy’s reported assets under management. 

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79. As Individual 2’s losses mounted, however, the purported receivable comprised a 

rapidly increasing percentage of Prophecy’s assets under management. By the end of 2019, the 

claimed receivable accounted for nearly 53% of Prophecy’s assets under management. 

80. To purportedly secure the receivable with collateral, Prophecy and Individual 2 

entered into at least six agreements consisting of, among other things, personal guaranties, 

promissory notes, and other pledged “assets,” which did not exist or had questionable value. 

81. Hughes, Individual 1, and PAM performed little to no due diligence on these 

assets (or on Individual 2’s personal finances), never taking any reasonable steps to value, 

control, or redeem the non-cash collateral provided by Individual 2, some of which was wholly 

fabricated. 

82. For example. Hughes and Individual 2 fabricated documents purporting to show 

non-cash collateral provided by Individual 2 in response to concerns raised by Prophecy’s 

auditor. In April 2019, during Prophecy’s on-going 2018 audit, Prophecy’s auditor identified 

that Individual 2 had a substantial cash deposit deficit during 2018 and emailed Hughes stating 

he “wanted to understand what was the rationale for the negative deposit accounts for [Individual 

2] and how/when Prophecy plans to remediate the same.” 

83. Subsequently, Hughes and Individual 2 fabricated certain documents concerning a 

purported agreement between Prophecy and Buddy’s Newco LLC (“Buddy’s”), a company 

controlled by Individual 2. 

84. Specifically, Individual 2 created an agreement titled, “Buddy’s Newco LLC 

Series A Preferred Stock Agreement” (“Buddy’s Preferred Stock Agreement”). On April 10, 

2019, Individual 2 emailed Hughes a draft of the Buddy’s Preferred Stock Agreement that 

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purported to show Prophecy’s ownership of $125 million worth of preferred shares of Buddy’s 

stock, backdated to January 1, 2018. 

85. Between April and June 2019, Hughes and Individual 2 exchanged additional 

drafts of the Buddy’s Preferred Stock Agreement in which the value of the shares ranged from 

$75 million to $150 million. 

86. On June 1, 2019, Hughes emailed Individual 2 stating that they needed to 

“Finalize the class [A] share document and get certificate for same.” Individual 2 responded, 

“Confirm date of issuance for you should be January 2018. This would become a credit to the 

fund and an asset on your balance sheet year end 2018 . . . .” 

87. By June 3, 2019, Individual 2 delivered to Hughes two Buddy’s Convertible 

Stock Certificates (“Buddy’s Certificates”) backdated to January 3, 2018. One of the certificates 

was for 75 shares with a purported valuation of $75 million. The second certificate was for 150 

shares with a purported valuation of $150 million. Subsequently, Hughes provided Prophecy’s 

auditor with the Buddy’s Preferred Stock Agreement and the Buddy’s Certificate purportedly 

valued at $75 million. 

88. In response to a series of questions from Prophecy’s auditor to Individual 2, 

which he forwarded to Hughes, Individual 2 falsely confirmed that Individual 2 had authority to 

issue the preferred stock to Prophecy and that the preferred stock was collateral used to secure 

Individual 2’s 2018 trading losses, was issued and outstanding as of December 31, 2018, and was 

issued in Prophecy’s name. 

89. In reality, Buddy’s Newco LLC Series A Preferred Shares were never issued to 

Prophecy or anybody else because the shares never existed. The entire agreement and 

transaction was a sham created by Hughes and Individual 2. 

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90. Around this same time, Prophecy’s administrator requested additional information 

concerning Individual 2’s non-cash collateral in light of Individual 2’s rapidly accelerating 

trading losses in 2019. In an email dated June 18, 2019, Prophecy’s administrator indicated that 

more than 58% of Prophecy’s $350 million net asset value was in the form of a $204 million 

receivable due from Individual 2 and should be classified as illiquid. 

91. The administrator requested that Prophecy identify the non-cash collateral that 

Individual 2 purportedly pledged to secure the receivable owed to Prophecy and provide the 

administrator with signed monthly certifications. 

92. In response, Hughes provided the administrator with a second Buddy’s Preferred 

Stock Agreement, which was now dated January 1, 2019 and purported to grant Prophecy $150 

million worth of preferred shares. These shares did not exist. The entire agreement and 

transaction was a sham created by Hughes and Individual 2. 

93. As requested, Prophecy began providing its administrator with certified monthly 

spreadsheets, signed by Hughes, listing Individual 2’s non-cash collateral. These monthly 

spreadsheets included the Buddy’s preferred shares, and other bogus collateral, and falsely 

represented to Prophecy’s administrator that the collateral was valid and could be liquidated to 

settle Individual 2’s receivable arising from his trading losses. 

94. Hughes, Individual 1, and PAM knew or were reckless in not knowing that the 

purported Buddy’s preferred shares were a sham. 

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3. Hughes Failed To Disclose Individual 2’s Losses And Lack of Cash 

Collateral To Investors 

95. In addition, Hughes, Individual 1, and PAM never disclosed to investors that 

Individual 2 had sustained massive losses or that they were permitting Individual 2 to continue 

trading without providing sufficient collateral. 

96. In July 2019, Prophecy’s administrator included a disclosure at the bottom of the 

June 2019 investor account statements that Prophecy may accept non-cash collateral. However, 

neither Hughes, nor anyone else, disclosed that Prophecy was accepting millions in non-cash 

collateral from its largest sub-adviser and doing little, if anything, to satisfy itself as to the actual 

existence and value of the non-cash collateral, most (if not all) of which were sham assets 

Hughes and Individual 2 made up. 

97. Hughes and Individual 1 caused PAM to provide prospective investors many of 

the same marketing and due diligence materials referenced above, which made no mention that 

Prophecy accepted non-cash collateral in lieu of cash, let alone in excess of $100 million from its 

largest sub-adviser. 

E. Hughes Concealed “Off-Platform” Investment Losses 

98. Hughes, PAM, and Individuals 1 and 2 also concealed other Prophecy losses 

associated with impaired assets on Prophecy’s balance sheet from investors, prospective 

investors, auditors, and the administrator by engaging in a series of sham and round-trip 

transactions using falsified and backdated documents. 

99. From 2015 through 2019, Prophecy engaged in a series of elaborate sham, roundtrip transactions with entities controlled by George Heckler (“Heckler”), Brenda Smith 

(“Smith”), and Individual 2. These transactions concealed from Prophecy’s auditor and 

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administrator (and ultimately its investors) losses Prophecy sustained, recasting the losses as new 

investments or loans. 

100. On August 27, 2019, the Commission charged Smith and Broad Reach Capital LP 

(“Broad Reach”), a hedge fund controlled by Smith, with securities fraud. Smith was also 

charged criminally for the same conduct and pled guilty to securities fraud. 

101. On March 9, 2021, the Commission charged Heckler with securities fraud. He 

was also charged criminally for the same conduct and pled guilty to securities fraud charges. 

102. Below are illustrative examples of some of the sham, round-trip transactions 

Hughes and others utilized to conceal Prophecy’s losses. 

1. Cassatt Short Term Trading Fund 

103. By year-end 2014, Prophecy had invested more than $20 million with Cassatt 

Short Term Trading Fund (“Cassatt”), a private hedge fund controlled by Heckler and ultimately 

revealed to be a Ponzi-like, fraudulent scheme. 

104. By the end of 2014, Heckler had ceased all trading activities, closed Cassatt’s 

brokerage accounts, mainly held illiquid assets, and was unable to fully redeem Prophecy’s 

investment. 

105. Although Hughes and Individual 1 knew that Cassett was unable to fully redeem 

Prophecy’s investment, they failed to disclose to investors, prospective investors, or auditors 

Prophecy’s substantial loss via the Cassatt investment, which would directly contradict 

representations made to investors regarding Prophecy’s investment strategy and liquid assets, 

and would jeopardize the future prospects of both Prophecy and PAM. 

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106. For instance, by 2018, Prophecy’s investment losses in Cassatt had been shifted to 

another hedge fund advised by PAM, Prophecy Alpha Fund LP (the “Alpha Fund”) and recharacterized as a $22.5 million loan owed to the Alpha Fund by another Heckler entity. 

107. In February 2018, Hughes, Individual 1, and PAM caused Prophecy to “invest” an 

equivalent amount ($22.5 million) in Clearview Fund LP (“Clearview”), an investment vehicle 

controlled by Smith. Clearview, in turn, used the investment proceeds obtained from Prophecy 

to purchase from the Alpha Fund the clearly worthless loan owed by Heckler for face value. The 

worthless loan owed by Heckler was the only asset of Clearview. 

108. In 2019, Prophecy cleared its books of the Clearview investment in advance of 

Prophecy’s 2018 audit by engaging in another set of complex fraudulent transactions. The below 

diagram illustrates this round-trip transaction: 

109. Specifically, on March 28, 2019, Prophecy “loaned” $21 million to Caiman 

Partners (“Caiman”), an entity controlled by Individual 2, which had no assets or operations. 

The following day, Individual 2 wired this money, plus approximately $2.2 million of his own 

funds, to Clearview Distribution Services LLC (“Clearview Distribution”), a newly created 

entity controlled by Smith, for the purported purchase from Clearview of the defaulted loan 

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owed by Heckler. Clearview Distribution wired the approximately $23.2 million it received 

back to Prophecy the same day. 

110. Prophecy represented to its auditor and administrator that the approximately $23.2 

million payment received was for the redemption of the investment in Clearview. 

2. Broad Reach 

111. By 2018, Prophecy had an investment valued at approximately $24 million in 

Broad Reach. Though Individual 1 claimed to at least one investor that Prophecy had full 

transparency into the underlying investments of Broad Reach, this was false. Broad Reach also 

turned out to be a Ponzi-like, fraudulent scheme. 

112. When Prophecy attempted to redeem its Broad Reach investment at the end of 

2018, Smith informed Hughes and Individual 1 that Broad Reach was only able to make a partial 

redemption of $6.5 million – leaving Prophecy with an approximate $17.5 million redemption 

receivable. 

113. By May 2019, with collectability of the receivable in doubt and in the midst of its 

2018 audit, Hughes, PAM, and Individual 1 again turned to Individual 2 to help fraudulently 

clear Prophecy’s books of the impaired asset and conceal the related loss. 

114. Specifically, in May 2019, Hughes emailed Individual 2 asking him to wire 

$17,579,885.15 to Prophecy, the exact amount of the outstanding Broad Reach receivable. 

115. Individual 2 sourced the funds needed from entities he controlled and routed the 

funds to Individual 2’s AGS Enterprises, which then, via multiple wire transfers, sent the exact 

amount requested by Hughes to Prophecy. 

116. The funds sourced by Individual 2 included approximately $444,000 and 

$580,000 of capital from Special Opportunities (a fund structure launched by PAM in 2019) and 

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Prophecy, respectively, relating to purported investments in entities controlled by Individual 2 in 

the days leading up to Individual 2’s purchase of the Broad Reach interest. 

117. On June 12, 2019, days after Individual 2 began making the AGS Enterprises’ 

payments to Prophecy, Individual 2 emailed Hughes a one-page agreement backdated to April 1, 

2019 titled “Assignment of Limited Partnership Interest.” This document purported to assign 

Prophecy’s partnership interests in Broad Reach to AGS Enterprises. 

118. Hughes and Individual 1 agreed it was again necessary to conceal Individual 2’s 

involvement in this transaction. In addition, Hughes and Individual 1 knew that Prophecy’s 

limited partnership agreement with Broad Reach did not allow Prophecy to unilaterally assign its 

partnership interests to a third party. 

119. To overcome these hurdles, Individual 2 forged the signature of his 13 year-old 

son on the document, using his son’s first and middle name but omitting his last name; and 

Hughes and Individual 1 altered the limited partnership agreement before sending it to 

Prophecy’s auditors in such a way that purportedly allowed Prophecy to assign its limited 

partnership interest in Broad Reach. 

120. On June 17, Individual 1 emailed Prophecy’s auditor concerning the Broad Reach 

redemption, falsely stating “[w]hile we redeemed for 12/31/18, we received the proceeds plus 

interest during the interim.” Individual 1 supported this assertion by sending a Broad Reach 

account statement indicating Prophecy was fully redeemed by April 2019. 

121. After Smith was charged by the Commission in August 2019 and arrested by law 

enforcement in connection with the criminal case, at least one investor recalled that Prophecy 

had invested in Broad Reach. The investor contacted Individual 1 to inquire whether Prophecy 

had suffered a loss in Broad Reach. On August 27, Individual 1 replied with false assurances 

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that “[w]e are not in that fund” and “[w]e are not impaired by this event.” Individual 1 knew or 

was reckless in not knowing that his representations to the investor were false and/or misleading. 

3. Vintage Capital Management LLC 

122. Although Individual 2 had a cash collateral deficit in excess of $50 million during 

the fall of 2018, Prophecy provided a $36 million unsecured loan to Vintage Capital 

Management LLC (“Vintage”), an asset management company controlled by Individual 2. 

123. Hughes and Individual 1 understood that Individual 2 was going to use the loan 

proceeds to provide rescue financing to a company in which Vintage was heavily invested. 

Prophecy included this new “allocation” on the December 2018 Portfolio Breakdown Report sent 

to investors as “Manager 33”, masking that it was going to an entity controlled by Individual 2. 

124. Hughes and Individual 1 failed to disclose the true nature of this large offplatform loan to investors, falsely classifying it as a “Fixed Income” trading strategy on the 

Portfolio Breakdown Report. 

125. By December 2018, the Prophecy loan to Vintage had matured and Individual 2 

failed to repay the loan. Rather than acknowledge to Prophecy’s auditor that the loan had 

defaulted and was uncollectable, Hughes and Individual 2 again entered into a series of complex 

sham transactions to conceal the failed loan. This time, Prophecy “invested” $36 million into 

two other entities controlled by Individual 2, which then routed the money to Vintage so it could 

repay the loan owed to Prophecy. 

126. When questioned by Prophecy’s auditor about the source of the Vintage loan 

repayment, Hughes lied, stating in an email that no additional loans were exchanged with 

Vintage or any affiliated entities of Individual 2 for the collection of the $36 million loan. 

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4. Samjor LP 

127. By year-end 2019, the receivable owed by Individual 2 to Prophecy had grown to 

approximately $192 million. However, Prophecy made no effort at any time to collect on the 

receivable through the purported non-cash collateral that Individual 2 had pledged to secure the 

receivable. 

128. Hughes and Individual 1 became concerned that Prophecy’s auditor and 

administrator would further scrutinize the validity of the non-cash collateral pledged by 

Individual 2. 

129. To relieve this concern, Hughes and Individuals 1 and 2 determined that the 

receivable Individual 2 owed would need to be replaced with a different “asset.” 

130. Subsequently, Individual 2 formed a limited partnership called Samjor LP 

(“Samjor”). According to the Samjor partnership agreement, Individual 2 was to initially 

capitalize the partnership by contributing $194 million worth of shares of a publicly traded 

company for which Individual 2 served as CEO, and Samjor would issue the lone limited 

partnership interest in the fund to Prophecy. In so doing, the receivable owed by Individual 2 on 

Prophecy’s balance sheet would be exchanged for a new limited partnership investment in 

Samjor. 

131. However, Individual 2 never contributed the shares to the partnership, rendering 

worthless the limited partnership interest issued to Prophecy. Although neither Hughes nor 

Individual 1 took any steps to confirm whether Individual 2 ever funded the Samjor partnership 

with publicly traded securities, Prophecy reported this transaction to its administrator as a new 

“fund investment” worth $194 million. 

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132. In order to finalize Prophecy’s net asset value for the month, Prophecy’s 

administrator requested from Hughes a statement issued by Samjor to confirm the value of the 

investment. Hughes passed along the request to Individual 2, who then issued a fabricated 

account statement to Prophecy’s administrator indicating that Prophecy’s investment in Samjor 

was valued at $194 million as of December 31, 2019 and January 31, 2020. 

F. Hughes Deceived Investors Into Investing In Special Opportunities, 

A New Fund Complex 

133. In April 2019, PAM launched Special Opportunities. Similar to Prophecy, 

Individual 1 raised capital for the funds and communicated with Special Opportunities’ investors 

and prospective investors and Hughes oversaw the back-office and risk management operations. 

134. Pursuant to its offering materials, Special Opportunities purportedly allocated 

capital to a smaller group of sub-advisers that were selected due to their past success. However, 

unlike Prophecy, Special Opportunities did not purport to have a first-loss component. Instead, 

investors stood to receive a higher percentage of any trading profits generated by the subadvisers. 

135. Hughes and Individual 1 caused PAM to provide a fact sheet to investors stating 

that Special Opportunities’ “assets are allocated primarily across liquid discretionary and 

systematic equity long/short strategies that have a non-market risk/asymmetrical return profile, 

liquidity of the underlying instruments, prior history with Prophecy, quality of operational 

infrastructure and ability to produce consistent returns.” 

136. The representations regarding Special Opportunities were false. Instead of 

investing the capital provided by investors in proven investment strategies as it had represented, 

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Special Opportunities allocated millions of dollars to Prophecy in the form of undocumented, 

unsecured loans, and to Individual 2 in the form of investments in entities under his control. 

137. According to Special Opportunities’ March 2020 balance sheet, of the $47.5 

million of assets held, almost $18 million had been loaned to Prophecy, and another 

approximately $19 million was invested in entities controlled by Individual 2. 

138. Hughes and Individual 1 caused Special Opportunities to make these loans and 

investments at a time when they both knew Prophecy was imploding due to Individual 2’s 

massive trading losses, lack of adequate collateral, and inability to repay his obligations. 

139. The capital allocated to Prophecy appears to have been used to purportedly 

provide first-loss cash deposits for certain sub-advisers whose trading profits would be split with 

Special Opportunities. But those funds were never segregated in a bank account overseen by the 

administrator and were largely transferred to prime brokerage accounts held by Prophecy. 

Moreover, at least some of the money allocated to Individual 2 was round-tripped back to 

Prophecy in order to conceal other investment losses, including losses arising from Prophecy’s 

investment in Broad Reach. 

G. The Fraud Unravels 

140. In a letter to investors dated March 31, 2020, Individual 1 disclosed that 

Prophecy’s auditor had resigned and withdrawn its opinion and that PAM had suspended all 

redemptions for Prophecy and Special Opportunities. 

H. Hughes Violated the Federal Securities Laws 

141. During the relevant period, Hughes defrauded investors and potential investors in 

Prophecy and Special Opportunities. 

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142. Hughes engaged in deceptive conduct including, but not limited to, creating false 

documents and engaging in sham transactions. 

143. All of the misrepresentations and omissions set forth herein, individually and in 

the aggregate, are material. 

144. Hughes acted knowingly and/or recklessly. Among other things, Hughes knew or 

was reckless in not knowing that he was engaging in deceptive conduct and making material 

misrepresentations and omitting material facts in connection with selling or offering of 

securities. 

145. Hughes had ultimate authority for false and misleading statements and omissions 

made orally and in writing to investors and prospective investors in Prophecy offering materials 

and other written communications to investors. 

146. Through this scheme, Hughes employed a device, scheme or artifice to defraud 

and engaged in acts, transactions or courses of business that operated as a fraud or deceit upon 

investors and/or clients. 

147. In perpetrating the fraud, Hughes used the means or instruments of interstate 

commerce or of the mails, or the facility of a national securities exchange, including by sending 

numerous documents containing false statements via email. 

148. The conduct described herein was in connection with the purchase or sale of 

securities. 

149. Hughes acted as an investment adviser during the relevant period by providing 

investment advisory services for a fee. 

150. Hughes provided investment advisory services to pooled investment vehicles, 

Prophecy and Special Opportunities. 

Case 3:23-cv-21816 Document 1 Filed 11/02/23 Page 29 of 35 PageID: 29
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151. In connection with the conduct described herein, Hughes breached the fiduciary 

duty he owed to his investment advisory clients. 

CLAIMS FOR RELIEF 

FIRST CLAIM FOR RELIEF 

Violations of Section 17(a) of the Securities Act 

152. The Commission re-alleges and incorporates by reference each and every 

allegation in paragraphs 1 through 151, inclusive, as if the same were fully set forth herein. 

153. By engaging in the conduct alleged herein, Hughes knowingly or recklessly or, 

with respect to subparts b and c below, negligently, in the offer or sale of securities, directly or 

indirectly, singly or in concert, by the use of the means or instruments of transportation or 

communication in interstate commerce, or the means or instrumentalities of interstate commerce, 

or the mails, or the facilities of a national securities exchange: 

a. employed devices, schemes or artifices to defraud; 

b. obtained money or property by means of, or made, untrue statements of 

material fact, or omitted to state material facts necessary in order to make the statements made, in 

light of the circumstances under which they were made, not misleading; and 

c. engaged in acts, transactions, practices, or courses of business that operated 

as a fraud or deceit upon offerees, purchasers, and prospective purchasers of securities. 

154. By engaging in the foregoing conduct, Hughes violated, and unless restrained and 

enjoined will continue to violate, Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]. 

Case 3:23-cv-21816 Document 1 Filed 11/02/23 Page 30 of 35 PageID: 30
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SECOND CLAIM FOR RELIEF 

Violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder 

155. The Commission re-alleges and incorporates by reference each and every 

allegation in paragraphs 1 through 151, inclusive, as if they were fully set forth herein. 

156. By engaging in the conduct alleged herein, Hughes directly or indirectly, by use 

of the means or instruments of interstate commerce or of the mails, or the facility of a national 

securities exchanges, in connection with the purchase and sale of securities described herein, 

knowingly or recklessly: 

a. employed devices, schemes, or artifices to defraud; 

b. made untrue statements of material facts and omitted to state material facts 

necessary in order to make the statements made, in light of the circumstances under which they 

were made, not misleading; and 

c. engaged in acts, practices, and courses of business which operated or would 

operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 

157. By reason of the foregoing, Hughes, directly and indirectly, violated and, unless 

enjoined, will continue to violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and 

Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. 

THIRD CLAIM FOR RELIEF 

Violations of Section 206(1) and (2) of the Advisers Act 

158. The Commission re-alleges and incorporates by reference each and every 

allegation in paragraphs 1 through 151, inclusive, as if the same were fully set forth herein. 

159. By engaging in the conduct alleged herein, Hughes knowingly or recklessly or, 

with respect to subpart b below, negligently, as an investment adviser, directly or indirectly, by 

use of the means or instrumentality of interstate commerce or of the mails: 

a. employed devices, schemes or artifices to defraud any client or prospective 

client; and 

Case 3:23-cv-21816 Document 1 Filed 11/02/23 Page 31 of 35 PageID: 31
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b. engaged in transactions, practices, or courses of business which operated or 

would operate as a fraud or deceit upon any client or prospective client. 

160. By engaging in the foregoing conduct, Hughes violated, and unless restrained and 

enjoined will continue to violate, Sections 206(1) and (2) of the Advisers Act [15 U.S.C. §§ 80b6(1) and (2)]. 

FOURTH CLAIM FOR RELIEF 

Violations of Section 206(4) of the Advisers Act and Rule 206(4)-8 thereunder 

161. The Commission re-alleges and incorporates by reference each and every 

allegation in paragraphs 1 through 151, inclusive, as if the same were fully set forth herein. 

162. Hughes, by engaging in the conduct alleged herein, directly or indirectly, by use 

of means or instrumentalities of interstate commerce or use of the mails, while acting as an 

investment adviser, engaged in acts, practices, or courses of business that were fraudulent, 

deceptive, or manipulative. 

163. Hughes, while acting as an investment adviser to pooled investment vehicles: 

(a) made untrue statements of material facts or omitted to state material facts necessary in order 

to make statements made, in light of the circumstances under which they were made, not 

misleading, to investors or prospective investors in the pooled investment vehicle; or (b) engaged 

in acts, practices, or courses of business that were fraudulent, deceptive, or manipulative with 

respect to investors or prospective investors in the pooled investment vehicle. 

164. By reason of the foregoing, Hughes violated and, unless restrained and enjoined, 

will continue to violate Section 206(4) of the Advisers Act [15 U.S.C. § 80b-6(4)] and Rule 

206(4)-8 thereunder [17 C.F.R. § 275.206(4)-8]. 

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PRAYER FOR RELIEF 

 WHEREFORE, the Commission respectfully requests that this Court enter a final 

judgment: 

I. 

 Permanently restraining and enjoining Hughes from, directly or indirectly, violating 

Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)], Section 10(b) of the Exchange Act [15 

U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5], and Sections 206(1), (2), 

and (4) of the Advisers Act [15 U.S.C. §§ 80b-6(1), (2), and (4)] and Rule 206(4)-8 thereunder 

[17 C.F.R. § 275.206(4)-8]. 

II. 

 Ordering Hughes to disgorge all ill-gotten gains or unjust enrichment with prejudgment 

interest, to effect the remedial purposes of the federal securities laws; 

III. 

Ordering Hughes to pay civil penalties pursuant to Section 20(d) of the Securities Act [15 

U.S.C. § 77t(d)], Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)], and Section 

209(e) of the Advisers Act [15 U.S.C. § 80b-9(e)] 

IV. 

Barring Hughes from serving as an officer or director of a public company pursuant to 

Section 20(e) of the Securities Act [15 U.S.C. § 77t(e), Section 21(d)(2) of the Exchange Act [15 

U.S.C. § 78u(d)(2)]; and 

V. 

 Granting such other and further relief as this Court may determine to be just and 

necessary. 

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JURY DEMAND 

Pursuant to Rule 38 of the Federal Rules of Civil Procedure, Plaintiff demands that this 

case be tried to a jury. 

Respectfully submitted, 

 By: s/ John V. Donnelly III 

 John V. Donnelly III 

 Gregory Bockin 

Burk Burnett 

Julia C. Green 

 Securities and Exchange Commission 

 1617 JFK Blvd., Suite 520 

 Philadelphia, PA 19103 

 Telephone: (215) 597-3100 

 Facsimile: (215) 597-2740 

Email: DonnellyJ@sec.gov 

ATTORNEYS FOR PLAINTIFF

SECURITIES AND EXCHANGE 

COMMISSION 

Dated: November 2, 2023 

Case 3:23-cv-21816 Document 1 Filed 11/02/23 Page 34 of 35 PageID: 34
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IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF NEW JERSEY 

SECURITIES AND EXCHANGE COMMISSION, 

 Plaintiff, 

 v. 

GEORGE HUGHES, 

 

 Defendant. 

Case No. 

DESIGNATION OF AGENT

FOR SERVICE 

 Pursuant to Local Rule 101.1(f), because the Securities and Exchange Commission (the 

“Commission”) does not have an office in this district, the United States Attorney for the District 

of New Jersey is hereby designated as eligible as an alternative to the Commission to receive 

service of all notices or papers in the captioned action. Therefore, service upon the United States 

or its authorized designee, David Dauenheimer, Deputy Chief, Civil Division, United States 

Attorney’s Office for the District of New Jersey, 970 Broad Street, 7th Floor, Newark, NJ 07102 

shall constitute service upon the Commission for purposes of this action. 

 

Respectfully submitted, 

s/ John V. Donnelly III 

John V. Donnelly III 

Attorney for Plaintiff 

U.S. Securities and Exchange Commission 

Philadelphia Regional Office 

1617 JFK Boulevard, Suite 520 

Philadelphia, PA 19103

 Telephone: (215) 597-3100 

 Facsimile: (215) 597-2740 

DonnellyJ@sec.gov

Case 3:23-cv-21816 Document 1 Filed 11/02/23 Page 35 of 35 PageID: 35
JS 44 (Rev. 04/21) CIVIL COVER SHEET

The JS 44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by law, except as 

provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Clerk of Court for the 

purpose of initiating the civil docket sheet. (SEE INSTRUCTIONS ON NEXT PAGE OF THIS FORM.)

I. (a) PLAINTIFFS DEFENDANTS

(b) County of Residence of First Listed Plaintiff County of Residence of First Listed Defendant

(EXCEPT IN U.S. PLAINTIFF CASES) (IN U.S. PLAINTIFF CASES ONLY)

NOTE: IN LAND CONDEMNATION CASES, USE THE LOCATION OF 

THE TRACT OF LAND INVOLVED.

(c) Attorneys (Firm Name, Address, and Telephone Number) Attorneys (If Known)

II. BASIS OF JURISDICTION (Place an “X” in One Box Only) III. CITIZENSHIP OF PRINCIPAL PARTIES (Place an “X” in One Box for Plaintiff 

(For Diversity Cases Only) and One Box for Defendant) 

1 U.S. Government 3 Federal Question PTF DEF PTF DEF

Plaintiff (U.S. Government Not a Party) Citizen of This State 1 1 Incorporated or Principal Place 4 4

of Business In This State

2 U.S. Government 4 Diversity Citizen of Another State 2 2 Incorporated and Principal Place 5 5

Defendant (Indicate Citizenship of Parties in Item III) of Business In Another State

Citizen or Subject of a 3 3 Foreign Nation 6 6

Foreign Country

IV. NATURE OF SUIT(Place an “X” in One Box Only) Click here for: Nature of Suit Code Descriptions.

CONTRACT TORTS FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTES

110 Insurance PERSONAL INJURY PERSONAL INJURY 625 Drug Related Seizure 422 Appeal 28 USC 158 375 False Claims Act

120 Marine 310 Airplane 365 Personal Injury - of Property 21 USC 881 423 Withdrawal 376 Qui Tam (31 USC 

130 Miller Act 315 Airplane Product Product Liability 690 Other 28 USC 157 3729(a))

140 Negotiable Instrument Liability 367 Health Care/ 400 State Reapportionment

150 Recovery of Overpayment 320 Assault, Libel & Pharmaceutical PROPERTY RIGHTS 410 Antitrust

& Enforcement of Judgment Slander Personal Injury 820 Copyrights 430 Banks and Banking

151 Medicare Act 330 Federal Employers’ Product Liability 830 Patent 450 Commerce

152 Recovery of Defaulted Liability 368 Asbestos Personal 835 Patent - Abbreviated 460 Deportation

Student Loans 340 Marine Injury Product New Drug Application 470 Racketeer Influenced and

(Excludes Veterans) 345 Marine Product Liability 840 Trademark Corrupt Organizations

153 Recovery of Overpayment Liability PERSONAL PROPERTY LABOR 880 Defend Trade Secrets 480 Consumer Credit

of Veteran’s Benefits 350 Motor Vehicle 370 Other Fraud 710 Fair Labor Standards Act of 2016 (15 USC 1681 or 1692)

160 Stockholders’ Suits 355 Motor Vehicle 371 Truth in Lending Act 485 Telephone Consumer

190 Other Contract Product Liability 380 Other Personal 720 Labor/Management SOCIAL SECURITY Protection Act

195 Contract Product Liability 360 Other Personal Property Damage Relations 861 HIA (1395ff) 490 Cable/Sat TV

196 Franchise Injury 385 Property Damage 740 Railway Labor Act 862 Black Lung (923) 850 Securities/Commodities/

362 Personal Injury - Product Liability 751 Family and Medical 863 DIWC/DIWW (405(g)) Exchange

Medical Malpractice Leave Act 864 SSID Title XVI 890 Other Statutory Actions

REAL PROPERTY CIVIL RIGHTS PRISONER PETITIONS 790 Other Labor Litigation 865 RSI (405(g)) 891 Agricultural Acts

210 Land Condemnation 440 Other Civil Rights Habeas Corpus: 791 Employee Retirement 893 Environmental Matters

220 Foreclosure 441 Voting 463 Alien Detainee Income Security Act FEDERAL TAX SUITS 895 Freedom of Information

230 Rent Lease & Ejectment 442 Employment 510 Motions to Vacate 870 Taxes (U.S. Plaintiff Act

240 Torts to Land 443 Housing/ Sentence or Defendant) 896 Arbitration

245 Tort Product Liability Accommodations 530 General 871 IRS—Third Party 899 Administrative Procedure

290 All Other Real Property 445 Amer. w/Disabilities - 535 Death Penalty IMMIGRATION Act/Review or Appeal of

Employment Other: 462 Naturalization Application Agency Decision

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Other 550 Civil Rights Actions State Statutes

448 Education 555 Prison Condition

560 Civil Detainee -

Conditions of 

Confinement

V. ORIGIN (Place an “X” in One Box Only)

1 Original

Proceeding 

2 Removed from

State Court

3 Remanded from

Appellate Court 

4 Reinstated or

Reopened

5 Transferred from

Another District

(specify)

6 Multidistrict

Litigation - 

Transfer

8 Multidistrict

Litigation -

Direct File

VI. CAUSE OF ACTION

Cite the U.S. Civil Statute under which you are filing (Do not cite jurisdictional statutes unless diversity):

Brief description of cause:

VII. REQUESTED IN

COMPLAINT:

CHECK IF THIS IS A CLASS ACTION

UNDER RULE 23, F.R.Cv.P. 

DEMAND $ CHECK YES only if demanded in complaint:

JURY DEMAND: Yes No

VIII. RELATED CASE(S)

IF ANY (See instructions):

JUDGE DOCKET NUMBER

DATE SIGNATURE OF ATTORNEY OF RECORD

FOR OFFICE USE ONLY

RECEIPT # AMOUNT APPLYING IFP JUDGE MAG. JUDGE

26 USC 7609

INTELLECTUAL

Bergen, NJ

Securities and Exchange Commission

John V. Donnelly III, Esq., Telephone: (215) 597-3100 

1617 JFK Boulevard, Suite 520, Philadelphia, PA 19103 

John Hughes

Ian D. Roffman, Esq., Telephone: (617) 439-2421 

Nutter, 155 Seaport Blvd., Boston, MA 02210

✖

✖

15 U.S.C. §§ 77t(b), (d); 15 U.S.C. §§ 78u(d), (e); and 15 U.S.C. §§ 80b-9(d), (e)

Investment adviser and securities offering fraud

Michael A. Shipp U.S. v. Hughes (DNJ)

✖

✖

Nov 2, 2023 s/ John V. Donnelly III

Case 3:23-cv-21816 Document 1-1 Filed 11/02/23 Page 1 of 2 PageID: 36
JS 44 Reverse (Rev. 04/21)

INSTRUCTIONS FOR ATTORNEYS COMPLETING CIVIL COVER SHEET FORM JS 44

Authority For Civil Cover Sheet

The JS 44 civil cover sheet and the information contained herein neither replaces nor supplements the filings and service of pleading or other papers as 

required by law, except as provided by local rules of court. This form, approved by the Judicial Conference of the United States in September 1974, is 

required for the use of the Clerk of Court for the purpose of initiating the civil docket sheet. Consequently, a civil cover sheet is submitted to the Clerk of 

Court for each civil complaint filed. The attorney filing a case should complete the form as follows: 

I.(a) Plaintiffs-Defendants. Enter names (last, first, middle initial) of plaintiff and defendant. If the plaintiff or defendant is a government agency, use 

only the full name or standard abbreviations. If the plaintiff or defendant is an official within a government agency, identify first the agency and then 

the official, giving both name and title.

 (b) County of Residence. For each civil case filed, except U.S. plaintiff cases, enter the name of the county where the first listed plaintiff resides at the 

time of filing. In U.S. plaintiff cases, enter the name of the county in which the first listed defendant resides at the time of filing. (NOTE: In land 

condemnation cases, the county of residence of the "defendant" is the location of the tract of land involved.) 

 (c) Attorneys. Enter the firm name, address, telephone number, and attorney of record. If there are several attorneys, list them on an attachment, noting 

in this section "(see attachment)". 

II. Jurisdiction. The basis of jurisdiction is set forth under Rule 8(a), F.R.Cv.P., which requires that jurisdictions be shown in pleadings. Place an "X" 

in one of the boxes. If there is more than one basis of jurisdiction, precedence is given in the order shown below. 

United States plaintiff. (1) Jurisdiction based on 28 U.S.C. 1345 and 1348. Suits by agencies and officers of the United States are included here. 

United States defendant. (2) When the plaintiff is suing the United States, its officers or agencies, place an "X" in this box. 

Federal question. (3) This refers to suits under 28 U.S.C. 1331, where jurisdiction arises under the Constitution of the United States, an amendment 

to the Constitution, an act of Congress or a treaty of the United States. In cases where the U.S. is a party, the U.S. plaintiff or defendant code takes 

precedence, and box 1 or 2 should be marked. 

Diversity of citizenship. (4) This refers to suits under 28 U.S.C. 1332, where parties are citizens of different states. When Box 4 is checked, the 

citizenship of the different parties must be checked. (See Section III below; NOTE: federal question actions take precedence over diversity 

cases.) 

III. Residence (citizenship) of Principal Parties. This section of the JS 44 is to be completed if diversity of citizenship was indicated above. Mark this 

section for each principal party. 

IV. Nature of Suit. Place an "X" in the appropriate box. If there are multiple nature of suit codes associated with the case, pick the nature of suit code 

that is most applicable. Click here for: Nature of Suit Code Descriptions. 

V. Origin. Place an "X" in one of the seven boxes. 

Original Proceedings. (1) Cases which originate in the United States district courts. 

Removed from State Court. (2) Proceedings initiated in state courts may be removed to the district courts under Title 28 U.S.C., Section 1441. 

Remanded from Appellate Court. (3) Check this box for cases remanded to the district court for further action. Use the date of remand as the filing 

date. 

Reinstated or Reopened. (4) Check this box for cases reinstated or reopened in the district court. Use the reopening date as the filing date. 

Transferred from Another District. (5) For cases transferred under Title 28 U.S.C. Section 1404(a). Do not use this for within district transfers or

multidistrict litigation transfers. 

Multidistrict Litigation – Transfer. (6) Check this box when a multidistrict case is transferred into the district under authority of Title 28 U.S.C. 

Section 1407. 

Multidistrict Litigation – Direct File. (8) Check this box when a multidistrict case is filed in the same district as the Master MDL docket. 

PLEASE NOTE THAT THERE IS NOT AN ORIGIN CODE 7. Origin Code 7 was used for historical records and is no longer relevant due to 

changes in statute. 

VI. Cause of Action. Report the civil statute directly related to the cause of action and give a brief description of the cause. Do not cite jurisdictional 

statutes unless diversity. Example: U.S. Civil Statute: 47 USC 553 Brief Description: Unauthorized reception of cable service. 

VII. Requested in Complaint. Class Action. Place an "X" in this box if you are filing a class action under Rule 23, F.R.Cv.P. 

Demand. In this space enter the actual dollar amount being demanded or indicate other demand, such as a preliminary injunction. 

Jury Demand. Check the appropriate box to indicate whether or not a jury is being demanded. 

VIII. Related Cases. This section of the JS 44 is used to reference related pending cases, if any. If there are related pending cases, insert the docket 

numbers and the corresponding judge names for such cases. 

Date and Attorney Signature. Date and sign the civil cover sheet. 

Case 3:23-cv-21816 Document 1-1 Filed 11/02/23 Page 2 of 2 PageID: 37