When an investment fund declined 90% in a single day, clients' alarm bells started ringing. The fund’s operator, former advisor Vishal Savla, blamed the steep losses on a “fat finger” trading error, but admitted in federal court last week that the real reason was years of poor trading.
VCAP, the fund Savla ran from May 2014 to April 2018, purported to trade in equities, options and futures contracts and appeared to boast returns of over 40%, according to Savla's plea agreement with federal prosecutors. That performance, however, was all a sham and Savla pleaded guilty to one count of wire fraud.
Savla, 37, admitted in the plea agreement that he raised $2.3 million from investors by assuring them he had a tried strategy to produce substantial returns. The reality: VCAP lost 96% in 2014 and more than 99% in the first 11 months of 2016, according to the plea agreement.
Clients were sent false email summary statements about the large positive returns VCAP had earned in that time. Through these communications the Chicago-based Savla duped investors into thinking their trading was consistently profitable.
Emails he sent to one investor stated VCAP’s returns for the last five months of 2014 were 54%, 67% during 2015 and 47% for the first eleven months of 2016.
Savla spent $260,000 of investor funds on personal living expenses without consent from clients and despite the fact that VCAP did not have any profits to speak of, according to federal prosecutors.
In 2016, two investors pressed Savla to make VCAP a more formal trading entity and said they wanted an audit of the fund. When Savla made excuses for why this could not happen, the investors say they told him they wanted to withdraw their balances by year end, according to the criminal complaint filed by the Department of Justice in court.
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The advisor used about $410,000 to pay back investors in Ponzi-like fashion to keep the scheme alive, the regulator says.
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At least 17 individuals invested $13 million in the scheme, and many lost 'substantial portions' of their life savings, prosecutors say.
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George L. Taylor and Temenos Advisory violated their fiduciary duty by pocketing commissions and concealing conflicts while the firm was in financial distress, the commission charges.
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In the final 10 days of 2016, Savla tried to blame the fund’s losses on a “catastrophic trading error” resulting from a “fat finger” trade, meaning he had made a quantity error when entering the trade. He then solicited additional funds from hundreds of individuals so he could continue trading and repay current investors. He also borrowed $500,000 from a family member, who believed that VCAP’s losses were the result of an honest mistake, and used these funds to partially repay investors as well, according to prosecutors.
In the plea agreement, he admitted there was no such error and that his trading losses were behind the decline.
Savla’s Chicago-based attorney, Chris Gair, declined to comment on the case.
Savla was last registered with a brokerage firm, Nico Securities, in 2013, according to FINRA BrokerCheck records.
Wire fraud is punishable by up to 20 years in prison and Savla’s sentencing is set for Jan. 9 of next year, according to prosecutors.
